Academy Trading Ideas Article

Bitcoin Buoyed by Support Zones in the Absence of Bullish Signs: Futures Friday

2020.06.19 Robbie Liu
Futures Friday image

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

This week saw Bitcoin (BTC) suffering from a series of declines starting from the early hours of Monday morning, with OKEx Quarterly Future (BTCUSD0925) price dropping from around $9,300 to as low as 8,933.51, before a quick recovery. Since then, BTC has mostly traded in the $9,300 to $9,700 range with declining volatility and volumes. 

On the technical front, the Relative Strength Index (RSI) continues to remain neutral while the 60-day moving average (MA 60) has shifted up to $9,120, and played a supporting role in Monday’s pullback. From a short-term perspective, there are no obvious bullish signs.

While there has been a slight divergence between Bitcoin and U.S. stocks in the last few days, market participants still need to watch equities markets for possible spillover effects.

According to OKEx trading data, the market sentiment has been clearly bearish. The Long/Short ratio has been running below 1.0 for most of the week and in the absence of growing Open Interest (OI) the price may follow the market sentiment in the short term.

OKEx BTC Quarterly Futures (BTCUSD0925) 1D chart. Source: OKEx

OKEx Trading Data Readings

Visit OKEx trading data page to explore more indicators. 

BTC Long/Short Ratio

The BTC Long/Short Ratio has struggled to rise above 1.0 over the week, reflecting the widespread bearish sentiment among retail traders. Although the ratio briefly rose as high as 1.1 on Thursday morning, it has since fallen rapidly to its current level of 0.87. 

If the ratio falls below 0.8, it would indicate excessive bearishness and possibly result in a market reversal.

BTC Long/Short Ratio OKEx
Data Collection Time: 6/12 4:00 a.m. to 6/19 4:00 a.m. (UTC)

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. This means the total number of long positions must be equal to the total number of short positions. When the ratio is below 1, it indicates that more people are holding shorts and vice versa.

BTC Basis

The quarterly future (BTCUSD0925) premium was running at around $80 last weekend. It then fell to $50 during Monday’s decline before recovering to $110 on Thursday. However, today the premium is down to $60 again, indicating lowering confidence among market participants.

btc basis
Data Collection Time: 6/12 4:00 a.m. to 6/19 4:00 a.m. (UTC)

This indicator shows the quarterly futures price, spot index price, and also the basis difference between them. 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.

Open Interest and Trading Volume

The latest quarterly future went live last Friday, moving from BTCUSD0626 to BTCUSD0925, since then, however, we have not observed any significant position accumulation from whales. 

The Open Interest (OI) this week is essentially in line with the price fluctuations. At present, the OI is running at 6.1 million contracts (1 contract = $100), the highest in the past seven days, but it is still down 0.5 million from last Thursday’s high.

btc open interest
Data Collection Time: 6/12 4:00 a.m. to 6/19 4:00 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 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 new positions have been opened.

BTC Margin Lending Ratio

The Margin Lending Ratio fell to a monthly low of 0.91 on Tuesday, suggesting that traders were very bearish for the short term price. Though the ratio has recovered to 1.8 now, it still reflects some cautiousness in the spot margin market.

btc margin lending ratio
Data Collection Time: 6/12 4:00 a.m. to 6/19 4:00 a.m. (UTC)

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

This ratio also helps traders assess market sentiment. Generally, those 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

Robbie, OKEx Investment Analyst

The short term trend is in favor of the bears, but the 60-day moving average is relatively close to the current price, which restricts the margin for correction. Given how Bitcoin has been trading in a narrow range for about half a month, big swings may be coming soon. 

While the OKEx trading data indicators reflect a generally bearish sentiment, the 60-day moving average at $9,120 is offering critical support while the major resistance lies in the $9,600 – $9,700 range. 

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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