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Futures Friday Trading OKEx Insights Derivatives Bitcoin

Bitcoin futures data shows retail bulls are banking on BTC bottoming here

2021.11.19 Hunain Naseer
Bulls appear to be longing potential price bottoms for BTC after the market leader fell 15% this week.

In last week’s edition of Futures Friday, we highlighted how the retail sentiment appeared to be backing a bullish continuation for BTC as it traded around 65,000 USDT.

Since then, the market leader has been rejected from 66,300 USDT levels and has gone on to slide as low as 55,606 USDT today, per the OKEx BTC/USDT price.

From a technical perspective, BTC has lost the long-standing trendline that supported bullish continuation and is now looking for support at lower levels. For the market to turn bullish again, BTC needs to first reclaim 60,000 USDT and then consolidate above 63,000 USDT.

Meanwhile, the quarterly contract — BTCUSD1231, expiring in December this year — is trading at around $57,550 with a premium of $700 — less than half of last week’s $1,500. The BTCUSD0325 contract, expiring in March next year, is trading at $59,126, and its premium, at $2,277, is also notably lower than last week’s $3,500.

This decline in premiums is indicative of BTC losing the bullish trend and the market projecting lower prices in the near future.

OKEx BTC spot price on Nov. 19, 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 surge shows retail is “buying the dip”

The long/short ratio had largely been trending around 1.0 since the end of October, but there weren’t any major surges indicating retail interest. However, this week, we’ve noticed a sharp surge in the ratio as it went from around 1.26 to 1.76 yesterday, and it is currently around 1.8.

These values are significantly high and mean that traders holding long positions at these prices are nearly double those holding shorts. While this shows retail confidence in a possible bottom around these levels, it is also cautionary, as the last time we saw such figures was in May and the price continued to fall for weeks after that.

Whether or not retail bulls will be on the right side of this trade remains to be seen.

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 drops as BTC loses support

The basis, or premium, for BTC futures contracts reflects the market’s future projections. Compared to last week’s basis, the premium this week has dropped significantly. In fact, it is now at values not seen since September.

While this does paint a negative picture for future price appreciation, the basis is typically very dynamic and can move swiftly if the market turns bullish. For now, we can consider current values to be conditional projections of future price action based on BTC losing key support levels.

If the market leader recovers in the coming week, it won’t be surprising to see these premiums start climbing back sharply.

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 drops with potential profit-taking

The BTC futures open interest on OKEx kept growing in recent weeks and peaked at around $2.77 billion last week before declining along with the price in the last couple of days.

Yesterday’s close saw the OI around $1.94 billion, a figure that was last seen in September this year. However, OI drops coupled with price are not surprising, as market participants take profits and close their positions.

What bulls will want to see is growth in this OI as BTC attempts to find a bottom as well as renewed long positions entering the market. At the time of writing, the OI has recovered, somewhat, to cross $2.11 billion, which is a positive sign when seen with the long/short ratio rise.

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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