When market participants are cautious, the premium of two short and medium-term Bitcoin Futures traded at BitMEX is on the rise. According to Luke Martin, a trader and analyst, the divergence between Bitcoin spot prices and premiums, which is the cost of acquiring either December 2019 (XBTZ19) or March 2020 (XBTH20), and obliging to buy or sell Bitcoin at expiry at BitMEX, is expensive. This hints of confidence of Bitcoin future prices and therefore a boost for traders that are cautious of committing.
Bitcoin Futures Guide Sentiment
The cost of Bitcoin Futures often increases when traders are bullish, expecting the price of the underlying asset to increase from spot rates by expiry. Conversely, when people are liquidating and bears have their noses in front, the product is availed at a discount.
Here's a chart to simplify the concept:
I'm having a hard time finding another time period where premiums rise 30-40% while spot price is dropping. pic.twitter.com/ZtU288TzZh
— Luke Martin (@VentureCoinist) December 2, 2019
BitMEX is the world’s largest crypto derivatives trading platform offering a range of products including perpetuals, Futures and Options of Bitcoin and other leading crypto assets complete with a high leverage of up-to 100X. In July, Arthur Hayes reported that the exchange trading volumes had surpassed the $1 trillion mark in the last trading year.
— Arthur Hayes (@CryptoHayes) June 29, 2019
The XBTZ19 and the XBTH20 series are two of the most popular Bitcoin Futures products, and the difference in premium could spell the end of a cruel bearish cycle. In six months, BTC prices have been on a downtrend, falling from highs of $13,800 printed in late-June 2019 to Nov 23 lows when prices dropped below the psychological $8,000 and later $7,000 marks.
Bitcoin May Find Support
An array of technical and fundamental factors are supportive of bulls. Key amongst them is the confidence amongst derivatives traders. Judging from Bakkt participation volumes and the clear difference in premiums, BTC could likely edge higher by the end of the year, five months before the defining halving of May 2020.
Like BitMEX, Bakkt has steadied after a slow start. Bakkt offers two Futures products including the daily physically delivered Bitcoin contract and a monthly Futures product settled for cash. These options mean the ramp is preferred by institutions as well as investors who demand cushion from regulators.
Bakkt is powered by the same price discovery mechanisms used in leading public stock exchanges.
ICYMI: Wednesday's Bakkt Bitcoin Monthly Futures:
? Traded contracts: 5671 ($42.52 million, +148%) (New ATH ?)
? All time high: 5671 (11/27/2019)
? Open interest: $4.16 million (+6%)@Bottlepay this bot: https://t.co/MJaZ58oPiu ? pic.twitter.com/3qpbBPgmt3
— Bakkt Volume Bot (@BakktBot) November 28, 2019
On November 28, less than a week after BTC prices sunk to new 2019 lows, a record 5,671 contracts worth $42.52 million were traded for the cash-settled monthly product. The result was a temporary pull back from a key support level.
If this observation is true and prices recover after late November free-fall, Bitcoin traders and hodlers stand to benefit in the short-to-medium term.