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Bitcoin Derivatives Futures Friday OKX Insights Trading

Retail futures traders getting bullish again as BTC defends $42,000

2022.02.11 Hunain Naseer

Retail traders have started to show interest in longing BTC after it managed to stay above 42,000 USDT levels.

In the last edition of Futures Friday, we discussed how bulls were losing steam in the face of BTC’s struggle against 40,000 USDT levels. However, the market leader has managed to break through and rose as high as 45,800 USDT today before being rejected for the third time this week. Currently, BTC is trading around 43,000 USDT levels, per the OKX BTC/USDT price.

From a technical point of view, BTC needs to reclaim 46,000 USDT first, after which bulls will be looking at 50,000 USDT as the next big milestone. However, given the recent rejections and deviation from the 20-day moving average, it wouldn’t be surprising if BTC needs more time to consolidate before any more upward action.

In terms of futures contracts, premiums have dropped significantly in the last few weeks, and today, the quarterly contract (BTCUSD0325) is trading at a premium of just $25, while the bi-quarterly contract (BTCUSD0624) has roughly the same premium as last week’s $770.

While lowered premiums, or even negative ones, are common during a downtrend, these figures also drop down to zero as the particular futures contract nears expiration.

OKX BTC spot price on Feb. 11, with blue arrows marking recent Fridays. Source: OKX, TradingView

OKX trading data readings

Below, we take a look at several indicators to better understand market sentiment. You can visit OKX’s trading data page to explore more indicators.

BTC long/short ratio shows retail becoming bullish

The long/short ratio is an indicator of retail sentiment. In last week’s edition, we discussed how retail traders were focused on shorting BTC.

However, the market leader bounced decently from those levels and, while some bearishness persisted throughout the bounce, it seems retail traders are considering today’s drop as an opportunity to long.

Accordingly, the long/short ratio, which stood at 0.95 last time, is currently around 1.13, down slightly from today’s high of 1.27. This might be due to the fact that BTC has managed to defend the 42,000 USDT support — which is important for the uptrend to remain intact — despite the volatility after yesterday’s CPI data reveal.

BTC futures long/short ratio on OKX with markings highlighting values

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 shows short-term negativity

The basis, or premium, for BTC futures contracts, reflects the market’s future projections. Due to Bitcoin’s recent price action, the basis values have seen persistent declines.

The basis for the quarterly contract has continued to drop and is currently just above $20. This can be attributed to the contract’s upcoming expiry in March and the market’s expectations of an interest rate hike by the U.S. Federal Reserve around the same time.

BTC quarterly futures contract basis on OKX 

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 shows some action

Open interest is not a bullish or bearish indicator in itself, but it shows participants’ interest in the market, especially during strong trends.

For the past few weeks, the OI had not moved in any meaningful direction, despite there being some price volatility.

This week, we finally saw the OI move up along with the price, which is a good signal for bulls, indicating that the price surge was followed by increasing interest in the market (in the form of new positions).

At the time of writing, the OI stands at around $1.64 billion, compared to $1.48 billion last week.

BTC futures open interest and volume on OKX with markings highlighting values

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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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.