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Bitcoin futures data shows retail traders still prefer shorting BTC

2021.08.27 Hunain Naseer

Despite BTC crossing $50,000 this week, retail traders did not FOMO into longs and preferred shorting the market leader.

Futures Friday

In last week’s edition of Futures Friday, we highlighted how BTC’s move up appeared to have caught retail traders by surprise. After that, BTC went on to peak at 50,500 USDT on Aug. 23 before sliding 8% across three days and dropping as low as 46,278 USDT yesterday, per the OKEx BTC/USDT price.

Spot BTC is currently facing significant selling pressure but has managed to hold its position above 46,000 USDT remarkably well for now.

Looking at Bitcoin futures contracts, the current quarterly contract, BTCUSD0924, which expires at the end of September, is trading at $47,476, with a premium of around $110 over the spot price. Today’s premium is roughly three times less than last week’s, reflecting the current bearish sentiment. 

Similarly, the BTCUSD1231 contract, which expires in December, is currently trading at $48,764, with a premium of over $1,400 — roughly $300 lower than last week’s $1,700.

At the time of writing, BTC is trading at 47,314 USDT on the spot market and is likely to drop as low as 45,000 USDT if buyers don’t step in during the weekend.

OKEx BTC spot price on Aug. 27, 2021, 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 still favors shorts

The retail trading sentiment has generally improved since last Friday, but there is a visible lack of bullish conviction as traders continue to short BTC price surges instead of opening FOMO longs. 

The ratio largely remained below 1 during the last week (reflecting the dominance of short trades) except for yesterday, Aug. 26, when BTC dropped over 4%. Since then, we’ve seen an uptick in retail longs with the ratio currently standing at 0.97, indicating an almost equal number of long and short positions.

What is interesting is that retail traders did not rush into longs after BTC broke 50,000 USDT, which implies that the market is still expecting more downside.

BTC futures long/short ratio on OKEx with markings showing movement between Fridays

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 the market’s lack of confidence

The basis or premium on the BTC quarterly contract is around $110 at the time of writing, nearly three times less than last week’s figure. However, what should be noted is how this premium largely ranged between $300 and $450 until BTC lost the 50,000 USDT level.

The basis fell sharply after that and went into negative figures at one point yesterday, reflecting the rapid shift to bearish sentiment. This trend is indicative of the market’s lack of confidence in BTC’s upside and ability to stay above 50,000 USDT in the short term.

That being said, extreme values, such as negative premium, are at times signs of upcoming market reversals, especially if the price manages to remain relatively stable for a while.

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 continues steady growth

For the last two weeks, we’ve observed how OI has managed to grow steadily, despite significant price volatility. 

The OI of BTC futures on OKEx peaked at around $1.87 billion on Aug. 23, corresponding with BTC’s break above 50,000 USDT. However, given how the long/short ratio was nearing recent lows at that time, we can assume that most of that OI comprised shorts.

On the bright side, the OI did not fall steeply after some of those shorts were closed and currently stands around $1.67 billion, higher than last Friday’s $1.61 billion.

BTC futures open interest and volume on OKEx with arrows marking movements between Fridays

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.

OKEx Insights presents market analyses, in-depth features and curated news from crypto professionals.

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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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