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All Indicators Healthy Leading up to Bitcoin’s Third Halving: Futures Friday

2020.05.01 Robbie Liu

Futures Friday is a weekly review of quarterly Bitcoin futures on OKEx.

The cryptocurrency market became volatile again this week as Bitcoin (BTC) approaches its third block-reward halving event.

After testing earlier resistance levels at $7,800 to $8,000 multiple times on lower timeframes, the Bitcoin price finally broke through on the morning of April 29 (UTC), with the OKEx Quarterly Future (BTCUSD0626) price up 13.82 percent on the day. It then quickly fell back after hitting $9,500 and is consolidating near $8,700 level, as of press time.

Bitcoin has now fully recovered its losses from the mid-March crash. The price of BTC has followed its historical trend, rising 36 percent in April, per OKEx Quarterly Future’s price — another sweet April.

Looking at OKEx trading data, there has been a recovery in many indicators. Margin Lending Ratio rose to its highest level since mid-March and is currently up for its second straight week. BTC Basis is back to positive territory, once again, after the price rally. However, Open Interest did not pick up much, considering the size of the rally.

The trading sentiment is still very cautious in the derivatives market.

Bitcoin Price
OKEx BTC Quarterly Futures (BTCUSD0626) 1D chart. Source: OKEx

OKEx Trading Data Readings

Visit OKEx's trading data page to explore more indicators.

BTC Long/Short Ratio

The BTC Long/Short ratio declined gradually before Wednesday, dropping from 1.3 to 0.9. It then bounced quickly alongside the price of Bitcoin, which broke through $8,600 on the afternoon of April 29 (UTC) — indicating that the market did not have a strong consensus about the notable price increase.

Currently, the ratio is running above 1.2, which indicates that more people are holding long positions than short.

The ratio is still low compared with February's peak above 2.5 and mid-March’s range of around 1.7.

OKEX BTC Long/Short Ratio
Data Collection Time: 4/24 12:00 a.m. to 5/1 12:00 a.m. (UTC)

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

In the derivatives market, whenever there's a long position opened, there must also be a short position opened to keep the balance. When the ratio is low, it indicates that more people are holding shorts.

BTC Basis

BTC Basis had been in negative territory for most of the week preceding Thursday’s rally.

The OKEx BTC Quarterly Future’s premium has not been pushed extremely high. It is only approximately $40 premium over the spot price per April 30's close time (UTC). The last time Bitcoin was trading near $9,000 in March, the premium was more than $400.

Bitcoin futures markets are still cautious about the rally before halving.

Bitcoin futures
Data Collection Time: 4/24 12:00 a.m. to 5/1 12:00 a.m. (UTC)

This 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 BTC futures reflects the traders’ expectations for the future 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 is more room for arbitrage.

Open Interest and Trading Volume

Open Interest (OI) may illustrate sentiment, similar to the BTC Basis indicator.

Open Interest did not pick up much, considering the size of the rally. The current OI of $8.37 million contracts (one contract=$100) is still far from the February 14 peak of $12.3 million — indicating that the rally was mainly driven by real spot buying.

If the Bitcoin price can continue to stay strong, one may expect Open Interest to build up to higher levels, together with market confidence.

Bitcoin open interest
Data Collection Time: 4/24 12:00 a.m. to 5/1 12:00 a.m. (UTC)

Open Interest is 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. If the trading volume surges and the open interest decreases in a short period of time, it may indicate that many positions are closed or were forced to liquidate. Likewise, if both the trading volume and open interest increase, it indicates that many positions have opened.

BTC Margin Lending Ratio

Margin Lending Ratio has gone up for two weeks in a row.

This week, Margin Lending Ratio rose sharply, from around 0.6 to 1.7 — its highest level since mid-March — indicating that the number of users borrowing Tether (USDT) rose quickly.

USDT borrowers generally aim to open long positions.

Data Collection Time: 4/24 12:00 a.m. to 5/1 12:00 a.m. (UTC)

The Margin Lending Ratio is spot market trading data showing the ratio between users borrowing Tether (USDT) versus borrowing Bitcoin (BTC) in USDT value over a given period of time.

This ratio also helps traders to look into market sentiment. Generally, traders borrowing USDT aim to buy Bitcoin. Borrowers, meanwhile, often aim to short the underlying coin.

When the Margin Lending Ratio is high, it indicates that the market is bullish. When the margin lending ratio is low, it indicates that the market is bearish. Extreme numbers of this ratio have historically indicated a trend reversal.

Trader Insight

Robbie, OKEx Investment Analyst

The Bitcoin price bounced hard off of support at $8,400 on the evening of April 30 (UTC). In the next few days, as long as the price consolidation does not break this support, we can expect more room on the upside. A retest of the $9,000 level is promising in the lower-time frames.

After seven consecutive green weeks, we can expect some buyer exhaustion. However, shorting BTC is still not ideal before its block-reward halving. A short-term consolidation during the next couple of days, followed by another rally in the last week before the halving, is my prediction.

All indicators mentioned in this article are healthy right now. If the market sentiment can be bolstered by the halving, those indicators have more room to go up, along with the price.

Philip Swift, Trader and Creater of LookIntoBitcoin.com

After an explosive 48 hours, Bitcoin volatility is now decreasing. It is likely we will enter a period of consolidation over the next couple of days as traders and investors take stock and anticipate what may come next.

The OKEx Long/Short Ratio indicates the number of traders opening long vs short positions. Since the Black Thursday capitulation, traders have largely been net short over the past six weeks. The sentiment is beginning to shift and turn net positive now, with Bitcoin's halving just 11 days away.

With continued interest in Bitcoin also coming from investors in the context of major money printing initiatives, I believe that the outlook continues to be very strong for BTC.

Philip Swift may be found on Twitter under the username @PositiveCrypto.

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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