While the market continues to trade in a bullish mode, as Bitcoin futures begin trading on the CBOE, there is still a lot to think about. The data gathered from the Bitcoin futures and the resulting price action, is giving traders a lot to think about.
Bitcoin futures from Chicago Mercantile Exchange (CME) went live earlier this week, and after successive declines, Bitcoin futures are now in backwardation.Trading bitcoin futures (BTC), including the June contract that expired on the 25th. The month of June is coming to an end, an unusual phenomenon called backwardation. Fixed-month contracts typically trade at a small premium, indicating that sellers charge more money to hold the arrangement longer. Futures are also expected to trade at a premium of 5-15% per year in healthy markets, which is in line with Stablecoin’s lending rate. This is known as contango and is not exclusive to the crypto-currency markets. If this indicator fades or becomes negative, it is a red alert. This situation is called backwardation and indicates bearish sentiment. FTX June BTC futures vs Coinbase USD. Source: TradingView As the table above shows, a healthy premium of between 0.1% and 0.5% was observed for most of the past three weeks. This corresponds to an annual rate between 2% and 9% and therefore varies from slightly bearish to neutral. When short sellers use excessive leverage, the indicator turns negative, which happened on the 17th. June is here. However, with a week to go before the June expiration, traders should use longer-term contracts to confirm this scenario. As the expiration date of the contract approaches, traders are forced to change their positions, leading to exaggerated movements. Huobi September BTC futures vs Coinbase USD. Source: TradingView September futures posted a premium of 1.7% or more to cash markets, up 7% year-over-year. This indicates a lack of interest in long positions, but far enough away from backwardation. Related: Here is how safe it is for professionals to trade bitcoin as long as it is traded in the $40,000 or so range.
What is really going on?
The final piece of the puzzle is the refinancing rate for open-ended contracts, which are the tool of choice for private traders. Unlike monthly contracts, open futures contracts (reverse swaps) trade at a price very similar to that of ordinary cash transactions. This makes life much easier for retail traders, as they no longer have to calculate futures premiums or manually roll over positions as expiration approaches. The financing rate is automatically applied to long positions (bids) every eight hours when more leverage is required. However, if the situation is reversed and the short positions (sellers) have excessive leverage, the coverage ratio becomes negative and they pay the commission. bitcoin perpetual term token – marginal funding rate. Source: Bybt Since May 24, the refinancing rate has fluctuated between positive 0.03% and negative 0.05% in 8 hours. So at their most bearish moments, short sellers were paying 1% per week to keep their positions. By comparison, longs paid more on the 13th. April 0.12% in 8 hours, or 2.5% for the week. While many traders interpret this slowdown as a bearish signal, there is currently no evidence of excessive leverage on the part of short sellers. Therefore, the lack of buyer interest in the June contract does not accurately reflect general market sentiment. If traders were truly bearish, long-term futures and open contracts would show this trend. The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph. Every investment and every stage of trading involves risk. You should do your own research before making a decision.
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