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Bitcoin Sees Slow Week and Weak Price Action Amid Retail Caution as Retail Traders Remain Cautious and Whales Missing — Futures Friday

2020.07.03 Robbie Liu

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

Bitcoin’s (BTC) price has been held up in a weak consolidation pattern since last Friday. While there were fluctuations, such as the dip to $8,800 on Saturday, followed by a quick rebound, the midterm threshold of $9,400 remained intact. This weak price action resulted in another pullback testing the $9,000 support, after which the price is at its current level of $9,150, according to the OKEx Quarterly Future (BTCUSD0925) market.

Looking at OKEx trading data, we can see that the BTC long/short ratio did not pick up through the week. However, the margin lending ratio hinted toward retail traders chasing the price rebound on Wednesday, just before the price collapse on Thursday. 

Presently, the Open Interest remains at a normal level with a $60 BTC Basis, indicating that the market is still in a consolidation phase. Whales appear to be missing from the action for now. 

OKEx BTC Quarterly Futures (BTCUSD0626) 4h chart. Source: OKEx

OKEx Trading Data Readings

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BTC Long/Short Ratio

The long/short ratio did not move much over the last seven days, hovering around 1.0. In a predominantly bullish market, this trend suggests a short-term bearish sentiment from retail traders. 

In Thursday’s pullback, however, this ratio ran as low as 0.85. As we've mentioned before, a long/short ratio close to 0.8 can indicate that retail investors are too bearish and that the market is likely to bounce back.

The ratio is currently running at 0.9, representing the presently bearish outlook. 

Data Collection Time: 6/26 6:00 am to 7/3 6:00 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

Due to the low volatility throughout the week, the change in BTC basis has not been significant, but it has remained positive. In Saturday's pullback, the OKEx BTC Quarterly Future’s premium dropped below $20, but it quickly rebounded to $60 and has remained in that range.

Overall market sentiment has not been very upbeat, but the $60 premium shows that participants are still expecting the price to appreciate by the end of the third quarter.

Data Collection Time: 6/26 6:00 am to 7/3 6:00 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

We previously noted the sharp drop in Open Interest last Friday. Since then, OI has been running sideways, with an uptick on Thursday taking it to a weekly high of 567 million contracts (1 contract = $100), but the overall figure remains neutral without any sign of whale activity or large build-ups.

Data Collection Time: 6/26 6:00 am to 7/3 6:00 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 margin lending ratio is still a lagging indicator and recorded 2.78 — the highest value of the week — on Thursday, just before the price dropped. Since then, the ratio has pulled back to 2.17, a normal range. 

Data Collection Time: 6/26 6:00 am to 7/3 6:00 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

It was another slow week that saw Bitcoin consolidating between $8,800 and $9,400. As long as the $9,400 threshold is not broken, the price action is likely to remain suppressed.

Since the OI is recovering very slowly, we may keep seeing prices moving in a tight range. However, the current low long/short ratio indicates retail traders are not optimistic in the short term, and this could be a sign that the price may continue to test the $8,800 support. 

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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