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Bitcoin Derivatives Trading Futures Friday

Bitcoin futures data shows retail is cautious now despite long-term optimism

2021.09.17 Hunain Naseer

Despite the fact that long-term projections remain bullish, retail traders appear to have taken profits this week as the BTC price recovered.

In last week's edition of Futures Friday, we highlighted the long-term bullish trend despite the recent Bitcoin price crash. At the time, BTC was trading around 46,000 USDT and went on to nearly touch 48,300 USDT this Wednesday. However, the price has corrected slightly since then, and the market leader is trading around 47,300 USDT per the OKEx BTC/USDT price at the time of writing.

Looking at Bitcoin futures contracts, the contract BTCUSD0924, which expires at the end of the month, is trading at $47,350, only $20 higher than the index. This premium is reflective of the fact that this contract is due to expire in the next few days.

Meanwhile, the BTCUSD1231 contract, which expires in December, is trading at $48,667 with a premium of over $1,300 — slightly higher than last week's $1,100.

As mentioned earlier, the quarterly contract's premium is not necessarily bearish, since premiums always decline as a contract's expiry nears. The December contract, however, continues to present a positive picture.

OKEx BTC spot price on Sept. 17, 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 cautiously optimistic

We saw retail trading sentiment improve in September, especially when compared to August's lows. Notably, the long/short ratio lows in this month are still higher than last month's even though BTC is trading higher. This trend shows underlying optimism for the price in the mid-term.

However, the long/short ratio peaked this week at 1.28 on Sept. 13 — when BTC dropped — and fell sharply on Sept. 14–15, as the price recovered. This pattern is indicative of longs being closed on relief to book profits and shows that the retail segment is averse to taking risks in this price range.

BTC futures long/short ratio on OKEx with markings highlighting historic 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 reflects optimism for year-end performance

The basis, or premium, for the BTC contract expiring in September, is a negligible $20. The next quarterly contract on the radar is the one expiring in December, and its premium continues to show long-term optimism.

Compared to last Friday's $1,100, the basis stands over $1,300 today and is not surprising given how the coming months – October to December — are historically Bitcoin's best in terms of performance.

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 takes a hit as retail steps back

The BTC futures open interest has seen gradual growth since the May crash but has not quite managed to reach pre-crash levels by a long margin. While we noted a general uptrend for the last few weeks, this week the OI corrected rather significantly.

Last Friday, the OI stood at over $1.6 billion, but the value is around $1.38 billion today. The OI visibly fell on Sept. 14–15, corresponding with the drop in the long/short ratio discussed earlier. This further shows that retail took profits and closed longs when BTC posted gains this week.

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.