Bitcoin futures show returning optimism, but uncertainty remains the dominant theme
OKEx Bitcoin futures data shows waning market confidence as price drops
Futures Friday is a weekly review of quarterly Bitcoin futures on OKEx.
After rebounding to as high as $19,427 at the end of last week, Bitcoin's (BTC) price reaped four days of losses this week, falling below $18,000, as per the OKEx BTC Index price. This week's downturn will likely result in a bearish engulfing pattern on the weekly chart and send Bitcoin into a mid-term correction phase.
In the futures market, the new quarterly contract BTCUSD0326 has gone live, while the previous quarterly contract, BTCUSD1225, became the bi-weekly contract. BTCUSD0326 is now trading around $18,300 levels with a premium of $450, or roughly 2.50%, over the index price.
In last week's Futures Friday article, we noted that several ratios returned to intermediate levels, indicating that retail traders do not have a clear attitude toward the price. The indicators generally show a lack of bullish sentiment.
This week, the long/short ratio fell to a multi-week low and open interest also fell to a new low not yet seen in December. Although the rapid upward movement of the BTC margin lending ratio on Wednesday showed that some traders were trying to catch the bottom, the price fell again today, possibly trapping some longs.
OKEx BTC Quarterly Futures (BTCUSD1225), as of 8:00 am UTC on Dec. 11. Source: OKEx, TradingView
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BTC long/short ratio
Overall, the long/short ratio continued to move downward, from around 0.9 at the end of last week to the current 0.8. At one point during Wednesday's price plunge, the long/short ratio had a quick upward move, indicating that a number of retail traders were trying to buy the dip. However, the ratio then quickly retraced, indicating that these traders quickly closed out their positions.
The current long-short ratio has fallen to its lowest point in weeks, showing a clear lack of confidence among retail investors to go long.
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.
Since the new quarterly contract went live this week and is far from the expiration date, it maintains a premium of more than $450, or 2.6%. The premium has been down from the mid-week's $500, but this still shows the market's confidence in the next year.
At the same time, we note that the funding rate for perpetual contracts remained subdued for the majority of this week, indicating that the market is not exactly bullish.
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
Open interest rose from $1.26 billion last Friday to Monday's high of $1.33 billion before quickly falling to the current $1.23 billion.
As it stands, OI in excess of $1 billion has become the norm. However, the current OI has fallen to the lowest level since the beginning of December, showing the waning willingness of market participants to trade.
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
BTC margin lending ratio shows an unusually fast rise after Wednesday's drop, rising from 11.0 to over 16.0. This indicates that there are traders in the spot leveraged market trying to buy at the bottom, even though they are still not very profitable at current prices.
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 Investment Analyst
After this week's consecutive declines, market optimism has taken a hit. Although OKEx data shows that traders were trying to buy at the lows, the current prices are not allowing them to take much profit.
On the weekly chart, if the downward engulfing pattern goes as expected, it may be difficult for the price to rechallenge $20,000 for the rest of December. The current support level of $17,550 to $17,650 on the index, or $18,000 to $18,150 on the quarterly contract, is very important and will determine whether Bitcoin can enter a consolidation phase at this stage or take another downward channel to test $16,500 levels. Overall the current trend is not optimistic.
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