Bitcoin futures market data says “continue the rally”

Bitcoin (BTC) price experienced a 22.5 percent rally in March, but as the price rose, some buyers started using high leverage. On the other hand, the open positions of the futures market reached a record of $ 22.5 billion. Investors question how sustainable the current rally is.

Buyers use high leverage and borrow too much, which raises concerns as a possible price drop could lead to repeated liquidations.

Bitcoin Price Index: 1 Bitcoin How Many TL? (BTC TL)

6-hour chart of the BTC / USD pair. Source: TradingView

Bitcoin reached $ 58,300 on February 21, followed by a 26 percent correction. During this adjustment, futures contracts worth $ 5.4 billion were terminated and overdue buyers were eliminated. This was confirmed by the reduction in the annual premium of 1-month futures contracts to 17 percent.

BTC futures, total open position in dollars. Source: Bybt.com

The open positions of BTC futures reached $ 22.5 billion on March 13, an increase of 39 percent per month.

It is necessary to take a look at some metrics to determine whether the market is overly positive. One of these measures measures the difference between the futures premium and the price of futures contracts and the spot market.

1-month futures are usually traded at an annual premium of 12 to 24 percent. When the sellers demand a higher price by delaying the end of the contract, a price difference occurs.

OKEx Premium for 1 month BTC futures. Source: Skew

The chart above shows that my Bitcoin futures premium peaks at 60 percent, which is often unsustainable. A premium rate of 35 percent indicates that buyers are overcharged and increases the likelihood of liquidation and market crash.

Notice how this indicator experienced a correction when BTC started dropping from $ 60k on March 13th. A similar incident was seen as BTC experienced a 22 percent retracement from $ 58,300 on Feb.21, with the futures premium falling to a neutral 16 percent.

While a premium rate of over 24 percent does not necessarily indicate a collapse, it does indicate that buyers are using very high leverage and overcharging.

On the other hand, open positions rose during the 71 percent rally since February. In other words, the short position holders are probably self-protected and benefit from the futures premium instead of waiting for a decline.

These arbitrage positions generally do not carry liquidation risk. Therefore, the current situation can be interpreted as a positive environment that supports the rise.

The opinions and views expressed herein are those of the author alone and do not reflect the views of Cointelegraph. Every investment involves risk. Do your own research before making a decision.

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