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Bitcoin Derivatives Trading Futures Friday

Bitcoin futures data shows retail has yet to FOMO into this rally

2021.10.15 Hunain Naseer

Despite BTC checking 60,000 USDT this week, retail traders are far from euphoric.

In last week’s edition of Futures Friday, we highlighted how retail traders appeared to be favoring short positions despite BTC sharp rise in October. Since then, the market leader has continued to post gains, appreciating roughly 10%, going from levels around 55,000 USDT to as high as 60,000 USDT today, per the OKEx BTC/USDT price at the time of writing.

From a technical perspective, BTC remains bullish, and while short-term corrections may be expected, the coming weeks should see BTC test the all-time high it set earlier in the year. That being said, Bitcoin futures data paints an interesting picture yet again, with retail traders still exhibiting caution instead of euphoria, as reflected in the long/short ratio. 

Meanwhile, the quarterly contract — BTCUSD1231, expiring in December this year — is trading around $61,065, with a premium of roughly $1,840, $500 higher than last week. The BTCUSD0325 contract, expiring in March next year, is trading at $63,000 with a premium of nearly $3,800, which is double what it was two weeks ago.

After weeks of muted premiums, we are beginning to see an uptick in the basis, which is a positive sign. However, there is still room for the basis to grow, since the current values are not particularly overheated. 

OKEx BTC spot price on Oct. 15, with blue arrows marking Fridays. Source: OKEx, TradingView

OKEx trading data readings

Below we take a look at several indicators to better understand market sentiment. You can visit OKEx’s trading data page to explore more indicators.

BTC long/short ratio shows retail lack of confidence

Despite Bitcoin’s sharp recovery in October, the long/short ratio has not shown any remarkable improvement and is trending below 1.0, indicating that retail traders still favor shorting BTC.

This trend is potentially bullish for BTC at this point, as the market often moves against retail expectations, and the fact that most retail traders are still not looking at longs gives BTC room for further growth.

BTC futures long/short ratio on OKEx with markings highlighting values

The long/short ratio compares the total number of users opening long positions versus those opening short positions. The ratio is compiled from all futures and perpetual swaps, and the long/short side of a user is determined by their net position in BTC.

In the derivatives market, whenever a long position is opened, it is balanced by a short position. The total number of long positions must be equal to the total number of short positions. When the ratio is low, it indicates that more people are holding shorts.

BTC basis finally shows some momentum

The basis or premium for BTC futures contracts reflects the market’s future projections, and after weeks of struggling to recover, these values are now on the up and are beginning to show positive momentum.

The premium for the contract expiring in December is up roughly $500 over the week while the premium for the contract expiring in March 2022 is up around $800. The positive takeaway is that these values are still not overheated and are actually at levels we saw in early September. This means the market is still not being overly bullish and the current levels are not overheated.

BTC quarterly futures contract basis on OKEx

The BTC basis indicator shows the quarterly futures price, spot index price and also the basis difference. The basis of a particular time equals the quarterly futures price minus the spot index price.

The price of futures reflects the traders’ expectations of the price of Bitcoin. When the basis is positive, it indicates that the market is bullish. When the basis is negative, it indicates that the market is bearish.

The basis of quarterly futures can better indicate the long-term market trend. When the basis is high (either positive or negative), it means there’s more room for arbitrage.

Open interest continues to rise with BTC

Another positive development is the recent rise of BTC futures open interest, which is now nearing the $2 billion mark — up significantly from last week’s values around $1.66 billion and September lows around $1.3 billion.

This surge in OI reflects new money flowing into the market and is necessary to back price growth. However, when looking at it along with the long/short ratio, it would appear that a sizable portion of this capital may be allocated to short positions.

That being said, it is not necessarily a bearish sign, as short positions also provide fuel for upside growth, especially when they are liquidated.

BTC futures open interest and volume on OKEx with highlights and historic trend

Open interest, or OI, is the value of the total number of outstanding futures/swaps that have not been closed on a given day.

Trading volume is the total trading volume of futures and perpetual swaps over a specific period of time.

If there are 2,000 long contracts and 2,000 short contracts opened, the open interest will be 2,000 multiplied by the value of each underlying contract. If the trading volume surges and the open interest decreases in a short period of time, it may indicate that a lot of positions are closed, or were forced to liquidate. If both the trading volume and open interest increase, it indicates that a lot of positions have opened.

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Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.



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