Academy Trading Ideas Article

Futures Data Gives Mixed Signals as Bitcoin Follows High-Risk Assets: Futures Friday

2020.06.12 Hunain Naseer

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

Bitcoin’s (BTC) price traded in a tight range, between $9,500 to $10,000 over the week, before a sharp decline which took it as low as $9,033 on Thursday, as per OKEx Quarterly Future (BTCUSD0925) price. However, the leading digital currency has since recovered to $9,400 at the time of writing.

Yesterday’s large pullback was in line with global market behavior in regard to high-risk assets. With the economic outlook provided by the Federal Reserve and the two millionth coronavirus case reported in the United States, the Volatility Index (VIX) soared again. VIX has historically moved contrary to Bitcoin’s direction. 

Meanwhile, OKEx trading data showed mixed signals. The Quarterly Futures premium of sub $100 still shows mid-term confidence, but the Long/Short Ratio under 1.0 and a sub 2.0 Margin Lending Ratio indicate retail traders have offloaded their holdings. 

The drop in Open Interest (OI) also hints towards some profit-taking, but traders may want to adopt a wait and see approach until the market picks a direction.

OKEx BTC Quarterly Futures (BTCUSD0925) 1D chart. Source: OKEx

OKEx Trading Data Readings

Visit OKEx trading data page to explore more indicators. 

BTC Long/Short Ratio

The long/short ratio had been running under 1.2 for the past seven days. After falling below 1.0 on Tuesday, it rose again briefly, but Thursday’s pullback sent the ratio down to 0.9, suggesting a shift towards short positions.

Bitcoin Long Short Ratio
Data Collection Time: 6/5 0:00 a.m. to 6/12 6:00 a.m. (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. This means the total number of long positions must be equal to the total number of short positions. When the ratio is below 1, it indicates that more people are holding shorts and vice versa.

BTC Basis

The latest bi-quarterly futures went live today, moving from BTCUSD0925 to BTCUSD1225, and we saw a high premium of $140 at the time of launch.
The quarterly contract future is now BTCUSD0925 instead of BTCUSD0626, and its premium has fallen from around $200 in the middle of the week to less than $100 now. However, it still shows some confidence among market participants for the mid-long term.

BTC Basis
Data Collection Time: 6/5 0:00 a.m. to 6/12 6:00 a.m. (UTC)

This indicator shows the quarterly futures price, spot index price, and also the basis difference between them. 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.

Open Interest and Trading Volume

Open Interest (OI)  had peaked on Thursday at 6.6 million contracts (1 contract = $100) but dropped significantly to 5.8 million contracts as price declined. The move indicates that some whales with previously opened shorts have closed their positions, along with large liquidations.

Bitcoin Open Interest
Data Collection Time: 6/5 0:00 a.m. to 6/12 6:00 a.m. (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 new positions have been opened.

BTC Margin Lending Ratio

The Margin Lending Ratio has fluctuated widely over the week, suggesting that traders are not very confident. After Thursday’s plunge, the ratio hit a recent low of 1.94 and is now trading near 2.0, which reflects short-term bearish sentiment in the spot market.

Bitcoin Margin Lending Ratio
Data Collection Time: 6/5 0:00 a.m. to 6/12 6:00 a.m. (UTC)

The Margin Lending Ratio is spot market trading data showing the ratio between users borrowing USDT versus those borrowing BTC in USDT value over a given period of time. 

This ratio also helps traders assess market sentiment. Generally, those 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

After Thursday’s crash, the $9,300 support became an important level. Breaking below this level will most likely test 8,500. However, Friday’s rapid rebound made it hard for traders to be overly pessimistic. Now that Bitcoin’s correlation with other, high-risk assets is under the spotlight once again, traders would benefit from keeping an eye on various markets.

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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