Bitcoin Struggles with Bearish Sentiment, Dashing Alt Season Hopes: Market Watch Weekly
Bitcoin Rises Against Market Expectations Post-Halving But Retail Traders Remain Cautious: Futures Friday
Futures Friday is a weekly review of quarterly Bitcoin futures on OKEx.
Earlier this week Bitcoin (BTC) completed its third halving event. One day before the halving, prices plunged more than $1,500 and triggered significant liquidations in the derivatives market. Since the halving, however, BTC has been on the rise and hit $10,000 again on Thursday.
Bitcoin has appreciated more than 10 percent during this week, rising from $8,600 to trade around $9,500 at press time, as per OKEx Quarterly Future (BTCUSD0626) price. Bitcoin’s post-halving performance has so far contrasted with the general market expectation of a decline in price.
Looking at OKEx trading data, we can see that the BTC Long/Short Ratio continued to hover around 1.0 in the last few days of this week, indicating that not many retail traders open longs while the price increased by $1,500 from last weekend’s low.
Meanwhile, the BTC Basis reflects an optimistic outlook since the premium has come back again. However, the Margin Lending Ratio shows that spot market buying has lost some momentum, which is an alert for short term bulls.
OKEx Trading Data Readings
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BTC Long/Short Ratio
The sharp price decline on May 10 sent the previous rising Long/Short ratio plummeting. In the follow-up price rebound, the ratio did not improve much and still stands below 1.0. This may indicate that traders are continuing to hedge their spot positions despite Bitcoin’s price recovery.
The Long/Short Ratio shows the ratio of the total number of users opening long positions versus opening short positions. The ratio is compiled from all futures and perpetual swaps. The long/short side of a user is determined by their net position in BTC.
In the derivatives market, whenever there’s a long position opened, there must be a short position opened as well to balance it. 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.
The BTC Basis has largely fluctuated over the past seven days. The OKEx BTC Quarterly Future premium dropped from $88 to negative $85 and then returned to a positive $77 before standing at $50 at press time. The return of positive premium suggests that the market is bullish on price expectations post-halving.
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 (OI) had accumulated to 6.28 million contracts (1 contract = $100) on May 10, rising from their May 8 low of 5.52 million, before longs got liquidated. On May 14, OI dropped sharply after the price hit $9,900. As we noted in Thursday’s Crypto Market Daily, this may indicate that some buyers closed their positions and took profits.
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 Margin Lending Ratio dropped quickly from over 4.5 to 0.8 after May 9, and ended three weeks of row rising momentum. While the ratio has now bounced back to 1.45, the pause in momentum suggests that traders are buying more cautiously in the leveraged spot market.
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.
Robbie, OKEx Investment Analyst
Technically, Bitcoin was back into the $10,000 to $10,500 key resistance area, where the last big drop started, and the price failed to close above $10,000 again on Thursday (UTC). Since the price has been up 10 percent during the week, profit-taking is likely to discourage further price increases in the short term.
While the indicators above show mixed signals with a good future premium over spot and a decline in OI. The Long/Short ratio (under 1.0) may indicate that retail traders are cautious to open longs at the moment. However, retail traders often act as a counter-signal to market movements and I still believe that the bulls are in control.
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