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Bitcoin Derivatives Futures Friday

Bitcoin survives event-driven week but futures market is far from over-confident

2020.10.09 Robbie Liu

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

Bitcoin price has been affected by several unexpected developments since the start of October. First, it was the U.S. DOJ and the CFTC charging BitMEX and its owners for a variety of violations, and then we saw President Donald Trump announcing that he had tested positive for COVID-19. Under this pressure, Bitcoin futures hit a weekly low of $10,509 on Oct. 2, as per the OKEx Quarterly Futures (BTCUSD1225) price.

On the bright side, BTC futures managed to hold the key support at $10,500, with quarterly premiums at healthy levels, around $150. The next development came on Oct. 6, when President Trump rejected the most recent economic stimulus proposal, causing risk asset prices to fall. However, BTC once again managed to hold its value, and in fact, saw a price surge following the Oct. 8 news about payment company Square purchasing $50 million worth of BTC.

Overall, in this event-driven phase, Bitcoin has absorbed the impact of negative developments very well and has reacted quickly to the good news. In the futures market, we saw volatility generally remaining low this month, and open interest has not reached extreme levels. At the same time, there is no marked increase in the market leverage either — all of which indicate that the price is unlikely to make sharp moves in the short-term.

Notably, the increase in Bitcoin's margin lending ratio observed in last week's Futures Friday did not continue this week, which shows that market participants are more cautious.

OKEx BTC Quarterly Futures (BTCUSD1225) as of 5:00 am UTC on Oct. 9 Source: OKEx, TradingView

OKEx trading data readings

Visit OKEx trading data page to explore more indicators. 

BTC long/short ratio

The BTC long/short ratio has dropped from 0.89 to as low as 0.71 after the price rebounded on Oct. 2, indicating that retail investors were not optimistic about the price surge. Since prices moved down again on Oct. 6, the long/short ratio began to rise and remained relatively high at around 0.85 throughout Thursday's rise. These movements indicate that market participants expect range-bound price movements in the short-term.

Although the long/short ratio is still running below 1.0, it has risen from September's low levels. This could be due to the drop in DeFi yields, which has led to more people removing BTC from their yield farms and has led to fewer hedges in the derivatives market.

Data Collection Time: 10/2 6:00 am UTC to 10/9 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

The quarterly futures premium remained unchanged at levels around $150, or roughly 1.5%, this week. But after Thursday's rally, this number spiked to above $190, indicating a slight rise in market optimism. Overall, however, the market remains cautiously optimistic about prices toward the end of the year.

Data Collection Time: 10/2 6:00 am UTC to 10/9 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

After BTCUSD0925, the former OKEx quarterly future, expired last Friday, the market went through the process of rebuilding positions. Overall, the pace of rebuilding has been fast, with open interest up $84 million in the past week. The current OI of $884 million is where it was at the end of September, but trading volumes, with the exception of Thursday's rally, have been moderate, at best.

Data Collection Time: 10/2 6:00 am UTC to 10/9 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 rapid upward movement seen in the margin lending ratio last week did not continue this week. The ratio followed the price this time, hovering in the 5.7 to 8.9 range.

Data Collection Time: 10/2 6:00 am UTC to 10/9 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

Given how there could be more breaking news ahead of the election, we may see Bitcoin's price volatility increase very quickly. However, after last week's cycle, Bitcoin has cemented itself above the $10,500 level, which is a positive technical indicator. That being said, the futures market still reflects cautious optimism, and the price is unlikely to make a big break above $11,000 in the short-term. On the downside, $10,700, followed by $10,500 are likely to support the futures price.


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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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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