ETH starts to push higher as DeFi market stagnates
Bitcoin marches on amid retail caution as futures open interest sets new ATH
2020.11.13
Futures Friday is a weekly review of quarterly Bitcoin futures on OKEx.
Bitcoin (BTC) has posted six green weekly candles since the start of October, marking six consecutive weeks of gains. The leading digital currency was gathering steam yet again this morning and hit $16,490, as per the OKEx BTC Index — its highest price since the second week of January 2018. Currently, the OKEx Quarterly Futures (BTCUSD1225) are trading at a premium of $300, or 1.8%, over the index price.
In last week's Futures Friday article, we noted how OKEx trading data reflected the market's bias toward short-term price appreciation. This week's data mostly shows retail traders hesitating to chase the price rally.
The BTC long/short ratio generally ran against the price movement with a stagnant spot margin lending ratio. At the same time, the level of the quarterly futures premium has declined in percentage terms and market participants are wary of open interest that has set new all-time highs.
However, Bitcoin still has room to rise despite retail fears, since not all trading data reflects overheating conditions. If the price is able to break through the $16,000 resistance level, it could continue the bullish momentum, and retail investors would likely FOMO into positions.
OKEx trading data readings
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BTC long/short ratio
The long/short ratio was largely moving opposite to the price during the week. The ratio came down from Sunday's high of 1.09 to the current 0.85 as the quarterly futures price increased from $15,200 to $16,600.
Notably, the long/short ratio bounced back quickly with each pullback in price, which indicates retail traders were opening long positions on dips but were closing them quickly as price appreciated.
After six straight weeks of gains, traders' hesitation in continuing to chase the price rally is understandable.
In addition, the funding rates on BTC perpetual swaps are not overheated either, which further indicates that retail investors are wary of pullback risks.
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
While the price is rising, the current BTC basis of $300 is in line with last Friday's, but in percentage terms, the premium is actually down. The stability in the premium also shows that the market is not overly excited at the moment. However, the current basis is still healthy and reflective of bullish market sentiment.
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 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 and trading volume
Open interest started climbing upward on Wednesday, from around $1 billion to a high of $1.2 billion this morning. The aggregated open interest across all exchanges also hit an all-time high today at $6.1 billion, as per data from skew.
While excessive open interest historically indicates increasing risk, this year's price rise is more a result of institutional money coming in, and we need more time to see whether this high open interest will become the norm or not.
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 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.
BTC margin lending ratio
BTC margin lending has not fluctuated much during the week, ranging between 9.5 to 11.5, which indicates that the market is not in FOMO mode. Another round of leveraging in the spot market may indicate retail traders rushing in, but the current leverage remains at healthy levels.
The margin lending ratio is spot market trading data showing the ratio between users borrowing USDT versus borrowing 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 BTC, and those borrowing BTC aim to short it.
When the margin lending ratio is high, it indicates that the market is bullish. When it is low, it indicates that the market is bearish. Extreme values of this ratio have historically indicated trend reversals.
Trader insight
Hunain Naseer, OKEx Senior Editor
November has been a key month for Bitcoin, as it broke through major monthly resistance levels formed in December 2017 and January 2018. Given the consecutive gaining streak, however, the market is naturally cautious at every new level, since there has been little in the way of consolidation since last month.
The futures trading data reviewed this week reflects this caution as retail traders await a major correction but continue to seek small profits between minor dips and surges. That being said, if BTC manages to build strong support around $16,000, its path toward the 2017 ATH will become relatively clear, and retail traders are likely to FOMO into the market with decent volumes, driving the price even higher.
Robbie, OKEx Investment Analyst
The price of BTC broke through the $15,800 resistance — or $16,100, on the quarterly futures — further enhancing market bullish confidence. However, there hasn't been much volume amplification this morning, which could raise some concerns.
Intraday support is around $16,100 — or $16,400, on the quarterly futures. If the short-term rally pattern can continue, then a minor pullback will not break this support level. On the contrary, if the support cannot hold, the correction will be significantly expanded. The lower support is at $15,400.
The current record high open interest is clearly a concern for the market, but strong buying in the spot market could support prices.
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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