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Bitcoin Derivatives Trading Futures Friday

Bitcoin futures data shows retail finally coming around as BTC sets new ATH

2021.10.22 Hunain Naseer

With BTC having set a new all-time high, retail traders have started to show bullish tendencies.

In last week’s edition of Futures Friday, we highlighted how retail was yet to FOMO as BTC appeared set to challenge the 60,000 USDT resistance. Since then, the market leader has gone on to set a new all-time high at 66,999 USDT before correcting to levels around 63,250 USDT, per the OKEx BTC/USDT price at the time of writing.

Bitcoin has had, as expected, a strong October, with current gains of around 46%. The price action has been massively bullish, and the majority of the market is expecting the uptrend to continue into the new year with significantly higher price targets.

Meanwhile, the quarterly contract — BTCUSD1231, expiring in December this year — is trading around $65,200, with a premium of roughly $1,900, almost at par with the premium last week. The BTCUSD0325 contract, expiring in March next year, is trading at $67,200 with a premium of roughly $4,000, quite similar again to last week’s $3,800.

Even though these premiums showed decent growth in the last few weeks, with BTC currently trading at ATH levels, this growth has stagnated to some extent. Now the market possibly wants to see BTC defend these gains until the end of this month before conviction can start setting in.

OKEx BTC spot price on Oct. 22, 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 shows retail is finally coming around

As mentioned in last week’s edition, the long/short ratio did not reflect any major retail bullishness despite BTC’s strong October performance. In fact, the ratio traded below 1.0 for the entirety of the month until that point.

However, the price — as it often happens — moved against retail sentiments and went on to make new highs. We’re now finally seeing the long/short ratio starting to inch above 1.0, which is a positive sign on two accounts. Firstly, it shows that retail sentiment is starting to shift again, and secondly, it shows that BTC has room for further growth because this price action has not seen retail FOMO yet.

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 continues growth but isn’t overheated

The basis or premium for BTC futures contracts reflects the market’s future projections, and we saw these values grow over the past few weeks as BTC started to rally again.

While these figures roughly doubled since the start of October, we’re presently witnessing some stagnation in that growth. This is typically a sign of caution from market participants wary of overly bullish projections.

Any consolidation by Bitcoin in the current range — especially above 60,000 USDT — is likely to help the basis grow further.

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 is now back at peak levels

The open interest for BTC futures remained largely unchanged after the May crash and struggled to recover until the end of September. Since then, however, it has surged rather quickly and is now at peak levels, matching those we saw in April and May.

This is a mixed sign. While the growth is positive because it accompanied price appreciation and shows the influx of new capital into the market, the OI reaching peak levels means the market is likely to be more volatile and could slide from here.

That being said, it is not uncommon for OI to continue growing in a bull phase, reach new highs and maintain them for prolonged periods of time.

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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