Bitcoin futures show returning optimism, but uncertainty remains the dominant theme
BTC futures data shows retail confidence, but BTC price continues to struggle
Retail traders seem confident that BTC price is near its bottom but market lacks a solid direction — Futures Friday
Bitcoin fell from around 60,000 USDT to just above 50,000 USDT yesterday afternoon, as per the OKEx BTC spot price. The drop came despite Tesla's announcement that it now accepts BTC as a payment method. Meanwhile, we also saw the premium of the Grayscale Bitcoin Trust reach an all-time low of minus 14% in the mid-week.
The largest-ever BTC quarterly options were just delivered today. In the last few months, BTC options that expire every Friday seem to sync with the bottom of price corrections. Traders should be closely watching the rolling put and call exposure from large whales.
In last week's Futures Friday, we noted the market is back in uncertain territory. This week, according to OKEx futures data, retail investors have started to buy the bottom in the past two days, which is reflected in the rising long/short ratio and the rising USDT premium in the Asian market. But the quarterly contract premium and open interest do not indicate an improvement in market sentiment.
At the time of writing, the former large volume contract BTCUSD0326 has been delivered. The current quarterly contract BTCUSD0625 — expiring at the end of June — is trading at $56,200 levels with a premium of around $2,700, or 5%, over the index price.
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BTC long/short ratio
The long/short ratio was hovering around 1.10 until Thursday. Then, after the price fell below 52,000 USDT, the ratio quickly rose to 1.40 levels, showing that retail investors tried to catch the bottom. Moreover, we observed a rise in the premium of USDT on OKEx, showing that retail investors came in to buy USDT via fiat. It is still difficult to determine whether this is a successful "buy the dip,” but to some extent, it shows that retail traders think that the bull market can still continue.
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.
Last Friday, the premium of BTCUSD0625 jumped to 8% before quickly retracing. The premium is now back to 5% levels, indicating weak market expectations regarding the end of June price. However, since the expiration date is still far off, any increase in price could quickly drive up the premium.
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
Similar to the BTC basis, open interest has seen a roller coaster ride over the week. The OI jumped from $2.70 billion to $3.17 billion on Saturday, accompanied by a 0.2% per eight-hour funding rate on the BTCUSD perpetual swap. This indicates that a large number of longs with high leverage entered the market. However, these long positions were heavily liquidated during Monday's price plunge, and now the open interest is back to $2.87 billion.
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 has also seen a counter-trend rise during the BTC retracement, rising from around 8.5 to a high of 10.5 in the past two days. This also indicates that retail investors are confident about the price floor near 50,000 USDT.
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 Market Analyst
Retail investors have seemingly been trying to catch the bottom around the past two days while institutions generally want to de-risk. 50,000 USDT is now becoming a key level to watch.
The current event-driven week is ending on a weak note with all the selling pressure stepping in after the Tesla announcement. However, with the massive options expiry out of the way, we could see BTC move more independently over the weekend.
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