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BTC futures data shows retail remains bullish despite the persistent downtrend
Bitcoin’s decline shows no signs of a reversal, but retail traders are reluctant to close their long positions.
BTC has been in a downtrend since it set an all-time high on April 14, when Coinbase went public — and that trend has accelerated over the past seven days. First, the market leader retraced 16% to touch 50,900 USDT at one point last Sunday, triggering the largest 24-hour liquidation ever. BTC then briefly rebounded but was restrained by the key 50-day moving average. On Thursday, impacted by the news that the Biden administration plans to increase the capital gains tax on wealthy individuals to 43.4%, BTC began another wave of selling. The price has now created a lower low near 48,000 USDT levels, per the OKEx BTC spot price.
In last week’s Futures Friday, before Sunday’s flash crash, we noted that the high premiums for quarterly futures would inevitably attract arbitrageurs to short and potentially put pressure on the price. Right now, according to OKEx futures data, the current quarterly contract (BTCUSD0625) expiring at the end of June is trading at $49,000 levels with a premium of around $1,500, or 3%, over the index price. This number is down by more than 50% from last Friday, reflecting the change in sentiment.
Other indicators — including the long/short ratio and margin lending ratio — saw counter-trend upward moves, which could lead to a rise in leverage, though we saw significant deleveraging after the flash crash on April 14.
Moreover, according to data from CoinOptionsTrack, there are about 27,000 BTC options that just expired today, the largest of which were about 2,500 puts at a strike price of $50,000. Looking back, BTC was under extreme downward pressure at the end of March when the quarterly options were expiring, but it saw a quick rebound after the options were delivered. We can’t know yet if the same scenario is going to repeat itself, but BTC is not showing strength at the moment.
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BTC long/short ratio
While the price of BTC has been falling over the week, the long/short ratio was moving up rapidly, and the current high of 1.76 has surpassed that of April 14, when BTC created its last all-time high. An excessively high long/short ratio does not seem to be healthy, however, especially when the BTC price is not showing clear signs of recovery.
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.
The premium for the quarterly contract BTCUSD0625 was running around 7% before last Sunday’s flash crash. During the decline, we can clearly observe that the quarterly future was briefly, but significantly, below the index price. Although the premium briefly picked up mid-week to around 5%, it has now fallen back to 3% levels.
As for the BTC perpetual swap funding rate, however, it has not turned negative as yet.
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
Sunday’s flash crash led to the largest liquidation in history, followed by a gradual drop in the open interest. OI has since dropped by 27% to the current $2.23 billion level, which shows that the market is not trending at the moment.
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
Similar to the trend in the long/short ratio, traders in the spot leveraged market also chose to increase leverage to go long when the price of BTC drastically dropped down. This indicates some bullish sentiment but also adds risk — as leverage is high once again after the April 14 crash.
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
The downward trend accelerated this week, with BTC falling below its 50-day and 100-day moving averages. Although a large number of options have expired this Friday, the price still does not show signs of a reversal.
As things stand now, the late February low near 45,000 USDT is the next strong support level. While the market leader has now fallen 25% from its recent all-time high, this is not uncommon in a bull market. If the price can reclaim the 100-day MA, at 49,500 USDT, over the weekend, bulls could see more action.
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