This could be a good sign for Bitcoin’s medium-term trajectory
Bitcoin has humbly hovered above the $ 32,500 support level since the start of this month. However, the value of BTC fell almost 5% in two days and quickly tested said level again at the time of publication. While the BTC spot market is still more or less dormant amid the Binance conundrum and other factors, derivative contracts have started to exhibit some anomalies.
While it is unclear whether news of Binance’s temporary suspension from the UK financial system was a major driver of Bitcoin’s latest price drop, the oddities presented in the derivatives market are a disturbing sign for the future of top crypto.
Bitcoin Futures volume hit 3,156 on July 9, the lowest since early June, according to the CME Group. As a result, there was a slight decline in open interest followed by a sustained upward slope. Moderately rising open interest may point to additional entry and interest in a market. However, its almost flat trend could also be an indication of a sustained downtrend for BTC.
Due to the lack of a fluctuating funding rate, quarterly Bitcoin futures have been widely preferred by whales and arbitrage bureaus. However, when traders go for perpetual contracts or reverse swaps, there is usually a fee, which varies depending on which side requires the most leverage. Additionally, fixed date expiration contracts typically trade at a premium compared to regular spot market exchanges.
Additionally, position data suggests the number of short contracts has doubled over the past week, while long contracts have remained largely dormant, with Bitcoin trading below $ 32.5,000 as of today. time of publication. In the last 24 hours of writing this, sentiment has remained largely bearish with an increase in short contracts.
On the contrary, examining the annualized premiums of Bitcoin Futures gave a healthier picture of the market in the long run. In September, the contract trades with an annualized premium of 2.2% on Deribit, the same having climbed to 4.48% in December. Likewise, an upward curve can be observed for most exchanges with annualized premiums above 4% for December.
This image is indicative of a healthy market, as a longer settlement period would generally force sellers to ask for a higher premium.
Other than that, there is some decent ‘Cash and Carry’ activity coming from the arbitrage bureaus as they buy Bitcoin while simultaneously shorting the futures contract. As their net exposure is flat, this does not necessarily indicate a negative future scenario. This activity, however, limits the premium on futures contracts.
What is the bigger picture?
At this point, it is best for investors to measure the 3-month futures premium which remains above 4% on an annualized basis. Flat or slightly inverted Futures cannot be interpreted as a major bearish indicator from a long-term perspective. However, if it falls below that, it could portray a lack of interest in leveraged long positions and point to a bearish future.
Average September annualized premiums for some exchanges hover around 3%, which is troubling but not surprising after a market correction of almost 50%. However, this highlights a general lack of buyer confidence in Bitcoin’s short-term price.