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Bitcoin’s Derivative Market Bulls Have Vanished
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Tag: Bitcoin Derivatives
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Bitcoin Is Flashing These Bullish Metrics Despite Week of Volatility, Says CryptoQuant CEO
A top executive at CryptoQuant says that he’s bullish on Bitcoin (BTC) despite the leading crypto’s rough week.
Chief executive officer Ki Young Ju of the on-chain analysis firm says that a few of Bitcoin’s fundamental metrics are showing signs of rising after a week that saw the king crypto drop nearly 15% from its high of $52,774.
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Ki Young Ju tells his 245,600 Twitter followers that Bitcoin’s supply on exchanges is nearing its 2021 lows, which can be interpreted as a bullish signal as it likely decreases the risk of major sell-offs.
“BTC supply on exchanges is about to break its previous low. Hope to see another sell-side liquidity crisis on Bitcoin.”
Source: CryptoQuant
The CryptoQuant head also says crypto whales moving Bitcoin into derivative exchanges, another potentially bullish indicator.
“Whales are sending BTC to derivative exchanges from other exchanges to punt new positions or fill up margins.
If you look at the historical data, the price goes up in the long term after their accumulation. Their positions seem to be long positions.”
Ki Young Ju has previously made a claim that he believes Bitcoin will skyrocket to $100,000 this year.
“No doubt it’ll hit $100,000 this year, but in the short-term, if we wouldn’t see any significant buying pressure from Coinbase Pro, I think BTC would be bearish.”
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Featured Image: Shutterstock/DM7
Uncertainty prevails as December 2021 Bitcoin futures show an inverted pattern
It’s not yet known whether Binance’s recent news of being temporarily suspended from the U.K.’s financial system is the main driver behind today’s Bitcoin (BTC) price drop. As Cointelegraph reported, the exchange sent emails to affected customers but has not given any details.
Regardless of the reason behind the price weakness, derivatives contracts started to display some oddities, and this could be a troubling sign.
Bitcoin quarterly futures are the preferred instruments of whales and arbitrage desks. Although it might seem complicated for retail traders due to their settlement date and price difference from spot markets, their most significant advantage is the lack of a fluctuating funding rate.
When traders opt for perpetual contracts (inverse swaps), there is a fee usually charged every 8-hours that will change depending on which side demands more leverage. On the other hand, fixed-date expiry contracts typically trade at a premium from regular spot market exchanges.
This effect occurs as sellers are postponing settlement, therefore requesting compensation for this time.
As depicted above, the Sept. 24 contract is trading with a 2.2% annualized premium at Deribit, while the Dec. 31 contract is at 3.8%. This curve is precisely what one should expect in healthy markets because a longer settlement period would usually cause sellers to request a more substantial premium.
Keep in mind that there’s a decent ‘Cash and Carry’ activity being deployed by arbitrage desks, buying Bitcoin while simultaneously shorting (selling) the futures contract. These players aren’t effectively betting on a negative price swing as their net exposure is flat, but this activity limits the premium on futures contracts.
Related: Bitcoin price is down, but here’s 3 reasons why $1B liquidations are less frequent
Focus on the broader picture, is the 3-month premium below 4%?
Therefore, a couple of exchanges presenting a flat or slightly inverted futures’ curve should not be interpreted as a bearish indicator. More importantly, investors should measure the 3-month futures premium, which should stay above 4% annualized.
Whenever this metric falls below that, it indicates a lack of interest in leverage longs and is interpreted as bearish.
Currently, the average September annualized basis (premium) of the four exchanges examined is running at 3.3%, which is definitively worrisome.
However, this is not unusual after the market experienced a 50% correction. This situation should simply be interpreted as a lack of confidence from buyers instead of an alarming bearish sign.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
Huobi bans crypto derivatives trading for users in China
Crypto exchange platform Huobi has updated its user agreement document, banning crypto derivatives trading for customers in China.
According to the updated user agreement section of the Huobi Global website, the ban on crypto derivatives trading covers users in jurisdictions like China, Taiwan, Israel and Iraq. Other banned countries include the United Kingdom — restricted to retail customers — as well as Bolivia, Bangladesh, and Ecuador, to mention a few.
The crypto derivatives trading ban is also in addition to longstanding prohibitions of the use of its platform in places like Hong Kong, Japan, Cuba, Iran, North Korea, Sudan, Canada, and the United States, among others. The platform warned that users who violate these restrictions risk losing their accounts.
Huobi’s ban on crypto derivatives trading for Chinese users is likely due to renewed cryptocurrency crackdowns from authorities in Beijing. Earlier in June, the platform stopped new users in the country from trading crypto derivatives while also reducing the allowable leverage from 125x to less than 5x.
Chinese authorities have upped the ante in recent weeks, even targeting the mining sector with close to 90% of Bitcoin (BTC) miners in the country forced to shut down.
Some companies have begun to move overseas with Bitcoin’s hash rate expected to see its largest difficulty drop with a significant portion of the network’s hash power offline, at least temporarily.
Related: Crypto exchange Huobi has reportedly stopped letting new users trade derivatives
Huobi’s ban also likely shrinks the options available to Chinese crypto derivatives traders. Platforms like Binance and OKEx may likely be the next port of call for looking to trade highly leveraged cryptocurrency contracts.
Binance for its own part has also been the subject of increased regulatory scrutiny. Only last week, the exchange giant received notices from regulators in the United Kingdom, Japan, and Ontario, Canada.