The inversion pattern of the Bitcoin futures curve shows that investor confidence in the BTC price continues to decline
It remains unclear whether Binance’s temporary suspension from the UK financial system is the main reason behind Bitcoin’s price drop today. How Bitcoin magazine As reported, Binance sent affected customers an email but did not provide any details.
Bitcoin price chart | Source: Tradingview
Regardless of the reason behind Bitcoin’s decline, 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 retailers due to their settlement dates and spot prices, 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, which changes 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 postpones payment, hence the entitlement for that time.
Annual premium for Bitcoin futures | Source: BitcoinFuturesInfo
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 there is a cash and carry activity
Rich is implemented by arbitrage desks that buy bitcoin while shorting 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.
Is a trading strategy that takes advantage of market price differences. It usually requires a spot long position while shorting futures or options.
Focus on the bigger 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 is still above 4% annually.
If this metric falls below this level, it shows a lack of interest in long leverage and is interpreted as bearish.
Currently, the average annual basis (premium) for 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.
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