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Bitcoin futures reflect mild optimism, but consolidation is on the cards

2020.10.16 Robbie Liu

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

Last Friday saw Bitcoin climbing quickly, driven by news of American financial services company Square purchasing $50 million worth of BTC. In the following consolidation phase, the price did not fall below the key short-term threshold of $11,450, as per the OKEx Quarterly Futures (BTCUSD1225) price, with a $200 premium over the spot market. 

This week's OKEx trading data shows an expansion of this market optimism, starting with the long/short ratio recording another recent high at 0.95, while the premium stayed above $200. The steady rise in the margin lending ratio on the spot market also indicates that market participants held on to their coins and were not shaken by small price fluctuations. 

The overall trend in Bitcoin is positive, as interest from large institutions continues to be high. This week we also observed some de-risking sentiment among market participants, but Bitcoin's response to the pullback in the equities was limited.

OKEx BTC Quarterly Futures (BTCUSD1225), as of 3:00 am UTC on Oct. 16. Source: OKEx, TradingView

OKEx trading data readings

Visit OKEx trading data page to explore more indicators. 

BTC long/short ratio

The long/short ratio over the past seven days has been running in the range between 0.85 and 0.95, up significantly from the 0.7 to 0.85 range during the first week of October. This also relates greatly to the price breaking above $11,000 and the market sentiment improving.

Data Collection Time: 10/9 2:00 am UTC to 10/16 2:00 am 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. 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

The basis between quarterly futures and spot has improved from last Friday's 1.9% to the current 2.1%. The basis had risen to $300, or roughly 2.5%, on Monday, confirming the market optimism, as any value above 2% is healthy for a bull market. 

Data Collection Time: 10/9 2:00 am UTC to 10/16 2:00 am UTC

This 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 and trading volume

Open interest has remained above $900 million this week and reached $950 million on Monday's rally but has since declined due to profit taking and short-position liquidations. If we look at the OI over the past three weeks, it has been rising steadily from $800 million to $900 million.

Data Collection Time: 10/9 2:00 am UTC to 10/16 2:00 am 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 positions have opened.

BTC margin lending ratio

The BTC margin lending ratio steadily moved upward during the week, from around 6.0 at the end of last week to the current 9.0, and the ratio did not retreat sharply in response to price fluctuations through the week. This also means that traders holding coins in the spot margin market are comfortable and confident in the market.

Data Collection Time: 10/9 2:00 am UTC to 10/16 2:00 am UTC

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

This ratio also helps traders to look into market sentiment. Generally, traders 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

Several retracements over the past few days were stopped near $11,450 as per the OKEx quarterly future price, and the short- to medium-term bullish pattern is still valid. However, the price of BTC is still not out of the $11,200 to $12,000 heavy trading area, since the selling pressure is still strong. Resistance is located around $12,000 to $12,300 and BTC is likely to continue consolidation going into the U.S. elections.

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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