Retail bulls go big on longs as BTC slides below $40K
Bitcoin futures data shows retail market awaiting a catalyst
After a tough September, BTC has shown signs of recovery today, but the market appears to be waiting for a catalyst.
In last week’s edition of Futures Friday, we highlighted how retail bulls were cautious but not out of the picture entirely, despite the negative price action. Since then, BTC largely remained under pressure, frequently testing the support zone around 40,500 USDT.
However, the market leader has moved swiftly today, picking up from September’s close around 43,000 USDT to go as high as 47,870 USDT per the OKEx BTC/USDT price at the time of writing.
Looking at Bitcoin futures contracts, the quarterly contract — BTCUSD1231 — expiring in December this year, is trading around $48,330, with a premium of roughly $950. Last week this premium stood at just over $700. Meanwhile, the BTCUSD0325 contract, expiring in March next year, is trading at $49,320 with a premium of over $1,900, decently higher compared to last week’s $1,600.
It will be interesting to watch how these premiums expand further over the weekend if BTC price maintains this newfound momentum. At the moment, however, they are not overly bullish.
OKEx trading data readings
Below we take a look at several indicators to better understand market sentiment. You can visit OKEx’s trading data page to explore more indicators.
BTC long/short ratio uptrend is bullish
The long/short ratio has had relatively bigger swings in September compared to June and July, but as noted on the chart below, the big-picture trend has remained bullish, and we can see an uptrend since early August.
This uptrend is a positive sign, showing that shorts have gradually pulled back over this period. At the time of writing, the long/short ratio is around 1.0, which denotes indecision, but we could see longs piling up if BTC manages to retail some of today’s gains over the weekend.
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 remains uninteresting
The basis, or premium, for the BTC contract expiring in December, has struggled to cross $1,000 in the last few weeks, and that hasn’t changed today, despite the positive price action. At the time of writing, the basis is just under $1,000, with momentary spikes above it.
Notably, this basis was often higher (above $1,000+) during June, July and August, even when the price was both higher and lower than the current range. This shows that BTC has yet to recover from the sentiment hit that came with September’s price action.
Similarly, the March 2022 contract, with a premium of $1,900, is far from being overly optimistic, implying that the market needs BTC to possibly breach $50,000 before retail sentiment starts heating up.
The BTC basis 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 decline not necessarily a bad thing
The BTC futures open interest continued to fall in September and currently stands just above $1.3 billion, compared to $1.36 billion last Friday.
This declining trend is indicative of the lack of enthusiasm in the market but is not a negative metric on its own, since it can also be interpreted to mean there are no major longs or shorts being piled on and the market is likely awaiting a catalyst to start taking positions again.
Open interest, or OI, is the value of 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 multiplied by the value of each underlying contract. 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.
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