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Bitcoin Derivatives OKX Insights Trading Futures Friday

Retail bulls losing confidence in a strong BTC price reversal

2022.01.14 Hunain Naseer

Retail traders appear to be losing confidence in a strong bullish reversal after BTC’s failed attempts to reclaim key levels.

In the last edition of Futures Friday, we noted how retail traders were aggressively longing a falling BTC in hopes of finding the bottom. However, BTC did not bounce until early this week, and that too after testing the key support level around 39,500 USDT. Since then, the market leader has been unsuccessful so far in its attempt to breach the nearest resistance and is currently trading under 42,000 USDT, per the OKX BTC/USDT price.

From a technical perspective, bulls should be concerned about BTC’s failure to reclaim any key levels, while bears will be looking to breakdown the 39,500 USDT support for a deeper fall.

In terms of futures contracts, the quarterly contract — BTCUSD0325 — is trading roughly $500 over spot, which is lower than last Friday’s $642. Similarly, the bi-quarterly contract — BTCUSD0624 — is trading $1,450 over spot, also lower than last week’s $1,600.

The fact that these premiums are lower compared to last Friday, even though the price of BTC is higher today, indicates weakening bullish sentiment due to Bitcoin’s continued struggle to find upward momentum.

OKX BTC spot price on Jan. 14, 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 breakdown of aggressive longs

The long/short ratio is an indicator of retail sentiment, and we noted last week how the ratio had continued to trend upward as retail remained aggressively long.

However, after peaking at around 2.13, the uptrend broke down as retail bulls took profits on the way up. The ratio fell to 1.14 on Jan. 12 and has bounced slightly since then to the current 1.69.

If BTC tests the 39,500 USDT support again, it would be interesting to see whether retail bulls aggressively long that range or not.

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 reflects growing lack of confidence in recovery

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 been trending downward. 

However, the fact that this week’s basis is lower than last week’s, despite BTC’s price being higher, indicates the market’s weakening confidence in a strong short- to mid-term reversal.

Bulls will want to see the basis recover strongly along with any bounce in price to assume the market’s shift back to bullish projections.

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 remains unremarkable

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

Last week, we highlighted the lack of any meaningful movement in OI, and the overall trend this week remains unremarkable. 

Once again, bulls will want to see the OI move up aggressively with the price as a sign of bullish sentiment returning to the market.

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.



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