Bitcoin futures premium reaches 30%, but analysts suggest, it’s unlike before

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March 30 may go down in history as a day that Bitcoin (BTC) enthusiasts will recall for a long time. Aside from marking a 17 percent turnaround from the March 25 low of $50,300, PayPal has officially announced that it would facilitate crypto payments for US consumers. Furthermore, CME Group announced that its Micro Bitcoin futures contracts would be available on May 3rd, with contract sizes beginning at 0.1 BTC.

Additional bullish news came as Morning Brew, a daily business newsletter with 2.5 million subscribers, finally dropped gold and is now exhibiting Bitcoin price in its markets section alongside the S&P 500, Nasdaq, Dow, 10-Year Treasury and JPMorgan stock.

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March 30 also marks the third week in a row that the Bitcoin price has seen a single candle near over $50,000. As a result, as the market signals a healthy consolidation cycle, traders should keep a close eye on the rate of leverage employed by buyers. Crashs have historically occurred when sellers are too bullish, and any sharp market change greater than 8% threatens to cause bigger cascading liquidations.

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BTC price at Binance, USD. Source: TradingView

The open interest in Bitcoin futures reveals the scale of the new longs and shorts, and as this amount rises significantly, it indicates that buyers are more exposed to risk. As a result, it indicates growing investor interest in the asset, but this comes at the expense of potentially large liquidations.

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BTC futures aggregate open interest in USD terms. Source: Bybt

Over the last two months, futures open interest has increased by 105 percent, as seen in the chart above. Meanwhile, the latest index of $22.6 billion is just 2% lower than its all-time peak.

While Bitcoin’s price rise can clarify a portion of this increase, it also indicates restored confidence, as longs on $7.4 billion is liquidated between March 14 and March 24.

The futures base rate can be used to assess whether skilled traders are bullish or bearish. The basis, also known as the futures premium, is a calculation of the disparity between longer-term futures contracts and existing spot market prices.

A 10% to 20% annualised premium (basis) is considered neutral, or a condition known as contango. This market disparity is exacerbated by vendors seeking extra money in order to postpone settlement for a longer period of time.

 

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OKEx BTC 3-month futures basis. Source: Skew

As the basis rate approached 35% on March 13, BTC markets entered an excessive-leverage scenario. Being upbeat, particularly during a bull market, should not be regarded as worrying. However, when the market plummeted 11% after the all-time high of $61,800, these ultra-leveraged buyers’ positions were terminated.

This moment, the basis rate is hovering about 29 percent, which is relatively high, although the figure may change itself over the next few days. These leveraged buyers can raise their margins or purchase BTC on standard spot exchanges to reduce their futures position.

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While longs tend to be highly leveraged, there are no indicators of possible market turmoil that lead to a detrimental outcome if BTC falls to $53,000. Since the majority of the latest rise in open interest occurred in early March, the long’s average price is definitely not any higher than this.

 

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