Futures traders still bearish

06 Sep 2022

Futures traders still bearish

Futures basis and funding rates remains compressed while CME’s BTC trading volume stagnates, indicating crumbling institutional interest in the crypto market.

The futures basis has stabilized as BTC has flattened near $20,000. The offshore 3-month basis stays below 1% as futures traders remain cautious with few positive catalysts on the horizon.

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Source: Skew

The situation in the futures market is unchanged from last week. CME’s futures still trade in backwardation as bearish flows dominate the institutional futures market. This is evident by assessing the ETF flows, where BITI still sees inflows vs. BITO experiencing outflows. Outside of ETF flows, CME’s BTC volumes were unusually low last week. This reduced volume may expose the market to more volatility and should be monitored closely onwards, as CME has previously been one of the key drivers of BTC’s price discovery.

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Source: Skew

This week saw the fourth lowest weekly BTC futures volume on CME since January 1st, 2021. Only the first week of August this year and two weeks of July last year saw lower weekly trading volume as institutional interest in BTC currently stays very low.

Ether trading in even sharper backwardation ahead of the Merge

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Source: Laevitas

Ether futures are trading substantially below the spot markets as the hedged merge trade still impacts future premiums.Currently, 3mth ETH futures trade at 7% annualized discounts to spot while the 1mth futures trade in an even sharper discount ranging from -10-15% annualized. As the merge occurs, and the potential hard fork has occurred, traders are likely to cover their shorts and sell spot leading basis to recover, analogous to how BTC futures reacted post the Bitcoin Cash hard fork in 2017.

Funding rates remain in negative territory

No changes in funding rates, as perps, still trade below spot.

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Source: Skew, Bybit, Binance

We are nearing one month of funding rates trailing below the neutral level of 0.01% on Binance and Bybit as perp flow still suggests lackluster demand to add long exposure.The Binance perp has seen interesting behavior in the last few days, with signs of an eager shorter appearing and disappearing from the market, shorting short-time frame bottoms and covering at short-time frame tops. As illustrated in the next slide, open interest in perps is still growing and has pushed towards new all-time highs in the last seven days.Overall, crypto derivatives remain in a prolonged bearish state, with no indications of a sentiment change in the last week.

The vertical venture of BTC’s open interest continues

Open interest in perps sees further growth – now sitting at 410,529 BTC.

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Source: Laevitas

BTC denominated open interest in perps grew by 12,000 BTC in the last week and still pushes towards new highs as BTC stays rangebound.The BTC denominated open interest in BTC perps now sits at a record high 410,529 BTC. The high open interest in the market and indications of reduced liquidity and trading volume may be a recipe for a volatility spike shortly. The next weeks offer several catalysts, most notably the U.S. CPI release (Sep 13th) and the ETH merge (Sep 14-15th).