18 Apr 2022

Futures market update: Futures premiums sitting near yearly lows – exhaustion?

Futures premiums remain muted, as both CME and FTX see their basis decline towards the lowest levels seen in months.
The futures premiums remain muted across the board, sitting at unusually low levels, illuminating the current bearish sentiment among traders.Throughout the last week, both FTX’s and Binance’s 3-month basis has floated around 2-3%. FTX’s basis has only been this low on one occasion in 2022, on Feb 28th, prior to BTC rallying from $38,000 to $44,000, in part fueled by a short squeeze.CME futures have resumed trading at a lower premium than its offshore venue peers, as the premium now sits at 1.34%.Over the last week, CME’s premiums reached lows that were only touched briefly on Feb 28th and Jan 21st. Such a low premium regime rarely lasts for long, implying that the current sell-off is possibly reaching a point of exhaustion.The unusually low basis on CME might be exaggerated by high outflows from the ProShares BITO ETF, leading to selling pressure in the futures. since March 31st, BITO has seen outflows roughly equaling 1,100 BTC.
Funding rate regime remains neutral to negative
Funding rates continue their prolonged path at or below neutral on Binance and Bybit, as has been the case since December 4th.This negative to neutral funding regime has lasted for nearly 4,5 months, which is by far the longest neutral funding rate regime experienced in perps.This funding regime tells a story of muted retail activity and possibly also more efficient market makers stepping in and contributing to aligning perp prices with the spot prices.
Source: Skew
Open interest also remains stable within the 240,000-260,000 BTC range seen throughout most of 2022. OI currently sits at 244,000 BTC after declining substantially yesterday from 257,000 BTC, suggesting that some underwater shorts took a hit following yesterday's brief rally from $39,000 to $41,000.This is further backed by liquidation data from Coinglass, showing that yesterday’s rally caused the largest short liquidation since March 28th.All in all, bearish sentiment dominates the derivatives market. The unusually low futures basis and prolonged depressed funding rate regime may create a ripe environment for short squeezes.
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