Futures desks executed 90% of Bitcoin trades in May amid a decline in spot trading activity.

In March, Bitcoin reached the six-figure mark for the first time this year, remaining near the upper $90,000 range throughout April. As May began, it opened at $96,505, and by May 22, it set a new record of $111,700, marking a 15.7% increase in just three weeks.

Since that peak, Bitcoin’s value has stabilized above $107,000, with trading in derivatives significantly surpassing that of spot markets, indicating where speculative interest lies.

During April, the cryptocurrency market averaged a daily spot volume of 32,403 BTC compared to 439,043 BTC in futures, resulting in a spot-to-derivative ratio of 0.0739. In May, these figures decreased to 23,766 BTC for spot and 350,734 BTC for derivatives, reducing the ratio to 0.0702 and increasing the derivatives’ share of the total activity to 93.7%, the highest such figure this year.

Over the 26 trading days observed in May, cumulative spot turnover reached 618,000 BTC against 9.12 million BTC in futures. In monetary terms, this translates to approximately $67 billion in cash transactions and over $990 billion in futures contracts. This ratio represents the lowest level seen since 2023, highlighting the market’s shift towards contract-driven activity since the introduction of ETFs earlier in 2024.

On the first trading day of this month, spot trading saw 9,435 BTC exchanged compared to 377,196 BTC in futures, yielding a ratio of 0.0746. By May 22, spot trades increased to 31,599 BTC, while derivatives rose to 467,328 BTC, compressing the ratio to 0.0677. By May 26, with prices cooling to $109,460, spot trading volumes fell to 14,967 BTC, whereas futures reached 289,617 BTC, resulting in a ratio of 0.0597, the lowest for the month.

Open interest mirrored trading volume trends. The total value in futures contracts grew from $65.81 billion on May 18 to $80.91 billion by May 22. This uptick coincided with the record price, pushing the open interest-to-market cap ratio above 0.05 for the first time, indicating a leverage factor exceeding 1:20 on several trading platforms.

The trend is evident: each increase in price has corresponded with a disproportionately larger rise in futures trading, while demand in the spot market has diminished post-peak. This suggests that price discovery is being driven by positions backed by funding rather than by direct purchases on cash exchanges. The predominance of contract trading means that small adjustments in funding can lead to significant price volatility.

Funding rates demonstrate the increased leverage. Data from May 21 to May 23 reveals that the open-interest-weighted rate rose from 0.0061% to 0.0181% before retracting to 0.0064%. This spike aligned with the new price high, indicating minimal spot flow was necessary once perpetual costs became positive. If rates turn negative, a similar mechanism could trigger price declines through widespread position liquidation.

Spot exchange-traded funds introduce another factor into the equation. From May 15 to May 22, net inflows amounted to $2.1 billion, yet the price surge significantly outstripped this cash inflow when analyzed against the volume of derivatives. With spot market activity subdued, any substantial ETF redemption could compel participants to shift into futures markets, potentially amplifying price movements.

Institutional investors appear to favor derivatives over spot transactions. During the period surrounding the record, the US 10-year yield dipped by eight basis points while the dollar index dropped by 0.6%. Basis trades that short the front month and buy spot to exploit funding slightly narrowed, reflecting the yield movement, but did not widen enough to prompt a major shift back to cash markets.

Without noticeable increases in cash buying, the market remains reliant on leveraged positions, which can both enhance potential profits and amplify losses. A consistent rise in the share of spot trading could establish a stronger foundation for Bitcoin’s value, while another drastic market correction might expose Bitcoin’s price to forced liquidations in the derivatives sphere.