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Bitcoin Derivatives Trading Futures Friday

Bitcoin futures data shows retail traders favor shorts over longs

2021.10.08 Hunain Naseer

With BTC roughly 30% up this month, retail traders appear to be favoring shorts over longs.

In last week’s edition of Futures Friday, we discussed how BTC bulls appeared to be waiting for a catalyst to push the market leader higher. Since then, we’ve had talk about a potential Bitcoin ETF approval and BTC has performed remarkably well, going from levels around 47,000 USDT to as high as 56,000 USDT today, per the OKEx BTC/USDT price at the time of writing.

From a technical perspective, BTC has broken through the key, 50,000 USDT resistance, and is currently facing the zone between 55,000 and 56,000 USDT as potentially the last barrier before it sets a new all-time high.

However, Bitcoin futures data doesn’t necessarily paint a very positive picture from a retail perspective. Looking at Bitcoin futures contracts, the quarterly contract — BTCUSD1231, expiring in December this year — is trading around $56,721, with a premium of roughly $1,330, marginally higher than last week’s $950.

Meanwhile, the BTCUSD0325 contract, expiring in March next year, is trading at $58,355 with a premium of over $3,000, which again, is not significantly higher than last week’s $1,900.

Given how these premiums are relatively modest, we can infer that retail investors are approaching this potential second-leg of the bull run very cautiously.

OKEx BTC spot price on Oct. 8, 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 is short-term bearish

The long/short ratio had trended upward for most of August and September, giving Bitcoin decent support that kept it afloat despite significant selling pressure. However, starting with October’s rally, that uptrend has broken down and retail traders appear to be favoring BTC shorts over longs.

At the time of writing, the long/short ratio is around 0.90, struggling to reclaim 1.0 since October started. This shows us that retail traders are betting against Bitcoin’s rapid rise, potentially because the market leader has already gone up nearly 30% since the month started.

BTC futures long/short ratio on OKEx with markings highlighting historic 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 far from overheated despite price growth

The basis or premium for BTC futures contracts is an indication of the market’s price projections. This premium had struggled to breach $1,000 for a couple of weeks before this week’s rise above that level. However, the current quarterly contract premium of around $1,350 is still lower than recent values of around $2,000 between June and September.

The premium for the contract expiring in March 2022 has seen a spike from $2,000 to $3,000 levels, but this is far from an overly bullish projection.

Overall, despite Bitcoin breaching the 50,000 USDT level, the premiums have not flipped to strongly bullish projections. This is, however, not necessarily a bearish signal, as it also means that there is room for the premium to grow from this point, allowing Bitcoin to rise even higher before the market starts getting 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 finally rises as BTC starts rallying

The BTC futures open interest saw a slump in September, barely managing to stay at levels around $1.3 billion. However, the start of October saw OI recovering, and it is currently at levels around $1.66 billion.

While OI building up is generally a sign of money flowing into the market, when we consider it along with the long/short ratio, it appears that most of the new positions being opened are short.

Once again, this is not necessarily bearish, since it is common for traders to open short positions during rallies, and continued upward price action can squeeze these positions for further fuel. 

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.

OKEx Insights presents market analyses, in-depth features and curated news from crypto professionals.

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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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