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Bitcoin Derivatives Futures Friday OKX Insights

BTC futures reflect renewed optimism likely to continue into the weekend

2021.02.05 Robbie Liu

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

Even though Bitcoin gave back almost all of the “Elon rally” gains over the last weekend and retested the support at 32,000 USDT, the first Monday of February, saw the market leader entering an upward trend. Bitcoin’s price has since surged from 33,000 USDT to almost 39,000 USDT in four days, as per the OKX BTC spot price. Although the price is still contained below $40,000, Bitcoin’s uptrend has caused the prices of altcoins, especially the DeFi sector, to soar. 

In last week’s Futures Friday, we observed the premium for BTC quarterly futures contracted 3% and that the market’s bullish sentiment was weakening. This week’s OKX futures data shows the premium is back to around 5%, together with open interest rising above $2 billion, indicating a quick recovery in market confidence. Combined with a long/short ratio hovering around 1.2 and funding rates of perpetual swaps that aren’t overheated as yet, we have reason to be optimistic that Bitcoin will continue this week’s strong trend over the weekend.

At the time of writing, the quarterly contract BTCUSD0326 — expiring at the end of March — is trading at 39,500 USDT levels with a premium of $1,800, or 4.9%, over the index price. 

OKX BTC quarterly futures (BTCUSD0326), as of 8:00 am UTC on Feb. 5. Source: OKX, TradingView

OKX trading data readings

Visit OKX trading data page to explore more indicators. 

BTC long/short ratio

The long/short ratio had little ups and downs during the week, hovering in a range of 1.07 to 1.53, and despite the fact that prices kept moving higher, the ratio did not return to last Friday’s high of 1.80. 

It also suggests that last weekend’s pullback dampened retail investors’ motivation to go long and that they are not highly leveraged to chase this week’s rally. The long/short ratio currently running near 1.20 is at a recent low level, which could favor further gains in Bitcoin prices.

Data collection time: 1/29 8:00 am UTC to 2/5 8:00 am 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. 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

The quarterly futures premium reached a recent low of 1.84%, or $600, on the last day of January and then started to jump along with the price. The premium is currently back to 4.8%, or $1,800, indicating that the market is regaining confidence very quickly. 

Moreover, the funding rate for perpetual swaps, which follow the same trend as the quarterly futures premium, continued to move higher during the week. It reached a peak of 0.19% on Thursday morning before the price falling back for a short-term correction. The current funding rate has been running around 0.06%, which is within the normal range and leaves room for Bitcoin to continue its upward movement. 

Data collection time: 1/29 8:00 am UTC to 2/5 8:00 am UTC

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

The opening interest showed a V-shaped reversal in the past seven days. First, the OI moved down with the decline in prices, then quickly jumped on Tuesday morning to regain the $2.1 billion level. This figure also indicates that the market is once again in an active trading phase and that prices may see further volatility.

Interestingly, OI, long/short ratio and funding rates all jumped around 8:00 am UTC on Feb. 2, which coincided with the price breaking out of a double-bottom pattern of 34,500 USDT on the spot, or 35,600 on the quarterly futures. This price level will be an important support in the future.

Data collection time: 1/29 8:00 am UTC to 2/5 8:00 am 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 positions have opened.

BTC margin lending ratio

The movement of the BTC margin lending ratio is exactly the opposite of the above indicators, which kept moving higher from 15 to 22 during the price declining phase and started falling sharply during the rebound this week. It indicates that spot leverage traders have been buying on the dip and closing their positions on the rally. In the last 24 hours, the ratio was flat and hovered around 15. 

Data collection time: 1/29 8:00 am UTC to 2/5 8:00 am UTC

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.

Trader insights

Robbie, OKX Investment Analyst

Market sentiment is recovering fast due to this week’s 6,000 USDT rally. A bullish pattern will form if the daily close can be above last Friday’s high. If that happens, Bitcoin is likely to challenge the 40,000 USDT mark and the all-time high near 42,000 USDT.

The support levels are currently located at 34,500 USDT and 32,000 USDT. However, all indicators appear healthy, and there are no apparent signs of a major pullback coming in the short-term. 

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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.