There is uncertainty as Bitcoin futures show a pattern in December 2021

It is not yet known whether the latest news from Binance about a temporary suspension of the UK financial system was the main reason behind Bitcoin (BTC) price declines today. As Cointelegraph reported, the exchange has notified affected customers by email, but has not yet given any details.

Regardless of the reason for the price weakness, derivative contracts are starting to show some oddities and this can be a worrying sign.

The quarterly Bitcoin futures are the most popular instrument and arbitrage desks of the whales. While it may seem complicated to retail traders because of their settlement dates and the spread versus the cash market, their biggest advantage is the lack of fluctuating funding rates.

When traders choose open-ended contracts (reverse swaps), a fee is typically charged every 8 hours, depending on which side is using more leverage. On the other hand, contracts that expire on a fixed date are usually traded at a premium on regular spot exchanges.

This effect occurs when the seller defaults on payment and takes up this time.

As described above, Deribit’s September 24th contract is trading at an annual premium of 2.2%, while the December 31st contract is 3.8%. This curve is exactly what to expect in healthy markets, as longer settlement times often result in sellers charging a higher premium.

Remember that arbitrage desks are performing an extensive “cash and carry” operation that buys Bitcoin while shorting (selling) futures. These players do not effectively bet on negative price movements as their net spread is constant, but this activity limits the premium on the futures contracts.

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Is the 3-month premium less than 4% in terms of the overall picture?

Therefore, some exchanges with 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% annually.

If this metric falls below this level, it shows a lack of interest in leveraged maturities and is interpreted as bearish.

Currently, the average (premium) annual basis in September of the four tested exchanges is 3.3%, which is clearly worrying.

However, this is not uncommon after the market has seen a 50% correction. This situation should be interpreted simply as a lack of buyer confidence rather than an alarming bearish sign.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.