BTC futures data shows profit-taking on Coinbase IPO news, but bulls remain in control | Trading Ideas| OKEx Academy

Bitcoin saw a “sell the news” move after setting a new ATH, but the market sentiment remains upbeat — Futures Friday

Bitcoin set a new all-time high of 64,847 USDT, per OKEx BTC spot price, on the day Coinbase went public. However, the price has since retraced nearly 6% to 61,000 USDT levels, while several major altcoins have significantly outperformed the market leader, pushing down its dominance from 57% to 53% in a week.

In last week’s Futures Friday, we noted how the alt season was gaining strength. This observation remains valid, and the altcoin frenzy will probably continue for some time, especially since Bitcoin is still dominated by bulls. 

According to OKEx futures data, the long/short and margin lending ratios are running at relatively high levels, while the current quarterly contract — BTCUSD0625, expiring at the end of June — is trading at $65,500 levels with a premium of around $4,300, or 7%, over the index price.

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BTC long/short ratio

The long/short ratio saw a rapid upswing when Bitcoin regained the $60,000 mark last weekend, rising from 1.2 to 1.6 before a gradual pullback. The ratio reached a mid-week low of about 1.3 on Wednesday when Bitcoin set an all-time high, indicating that market participants were taking profit with the Coinbase IPO news. However, the ratio is currently around 1.55, indicating that the market is still dominated by bulls. 

Moreover, USDT premium on OKEx is still stable near 2.4%, having touched a high of 3% midweek. This indicates that the demand for stablecoins in Asian markets is still strong. 

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 premium for the quarterly contract BTCUSD0625 had been pushed up to a high of 11% on Saturday and Tuesday, which is the highest level in this bull run. The high premiums, while reflecting market optimism, also inevitably attract arbitrageurs who short the quarterly contract and hold spot, potentially putting some pressure on the continued upswing of prices.

Similarly, the premium for the bi-quarterly contract BTCUSD0924, expiring at the end of September, is running at around 14% — a difference of more than $8,500 over the index price. At one point in the midweek, the bi-quarterly premium reached 18%. 

As for the BTC perpetual swap funding rate, it had surged to a high of 0.2% on Saturday but dropped under 0.1% in the last two days. However, the funding rates for major altcoins are still at high levels.

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

Prior to Coinbase’s IPO, the market was clearly in price-chasing mode, with open interest rising rapidly from $2.8 billion to $3.5 billion. It wasn’t until Wednesday that the OI dropped a bit, and it is now running near $3.1 billion.

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 margin lending ratio shows an overall downward trend from 8.1 to 7.5 levels this week, indicating that the spot leverage market had been realizing some profits as Bitcoin continued to make new highs. However, a margin lending ratio around 7.5 is still within the healthy range in a bull run. 

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, OKEx Market Analyst

Although Bitcoin price made another record high this week, the short-term impact of the IPO event may have ended for now. The price has pulled back 6% from Wednesday, and the intraday support is located near $61,000. A drop below this level could cause a deeper pullback. 

If Bitcoin can continue consolidating above $61,000, we are likely to see more altcoin action. Looking at the last bull run, we can see that it ended with Bitcoin’s dominance dropping quite low. Between December 2017 and January 2018, BTC dominance dropped from 70% to 36%. In contrast, the market leader’s dominance is still running around 53% today, which could indicate that alts have a lot more room to run.

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