{"id":179577,"date":"2021-02-16T19:30:00","date_gmt":"2021-02-16T16:30:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/is-a-retail-frenzy-causing-the-bitcoin-futures-markets-excessive-leverage\/"},"modified":"2021-02-16T19:30:00","modified_gmt":"2021-02-16T16:30:00","slug":"is-a-retail-frenzy-causing-the-bitcoin-futures-markets-excessive-leverage","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/is-a-retail-frenzy-causing-the-bitcoin-futures-markets-excessive-leverage\/","title":{"rendered":"# Is a retail frenzy causing the Bitcoin futures&#8217; markets excessive leverage?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3a1be657b2c\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3a1be657b2c\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/is-a-retail-frenzy-causing-the-bitcoin-futures-markets-excessive-leverage\/#Options_skew_remained_neutral-to-positive\" >Options skew remained neutral-to-positive<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/is-a-retail-frenzy-causing-the-bitcoin-futures-markets-excessive-leverage\/#Futures_premium_held_excessive-optimistic_levels\" >Futures premium held excessive-optimistic levels<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong># Is a retail frenzy causing the Bitcoin futures&#8217; markets excessive leverage? <\/strong>&#8221;<\/p>\n<div class=\"post-content\" data-v-5a136f3a>Bitcoin (BTC) has breached the $50,000 level on Feb. 16. But while failing to cleanly break the psychological barrier, it undoubtedly displayed the potential for even higher valuations.<\/p>\n<p>Meanwhile, futures and options indicators are misaligned, signaling excessive buyers&#8217; leverage, while options markets remain calm. After analyzing both markets, one might theorize what has caused this <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>arent incongruence.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Options_skew_remained_neutral-to-positive\"><\/span>Options skew remained neutral-to-positive<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>When analyzing options, the 25% delta skew is the single-most relevant gauge. This indicator compares similar call (buy) and put (sell) options side-by-side.<\/p>\n<p>It will turn negative when the put options premium is higher than similar-risk call options. A negative skew translates to a higher cost of downside protection, indicating bullishness.<\/p>\n<p>The opposite holds when market makers are bearish, causing the 25% delta skew indicator to gain positive ground.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-02\/2124d914-2d91-47fc-9fbf-3780e257a437.png\"><figcaption style=\"text-align: center;\">Deribit 30-day BTC options 25% delta skew. Source: laevitas.ch<\/figcaption><\/figure>\n<p>A skew indicator between negative 10% (slightly bullish) and positive 10% (somewhat bearish) is considered normal. Over the past three months, there hasn&#8217;t been a single occurrence of a 10% or higher 30-day skew, which is usually considered a bearish event.<\/p>\n<p>This data is very encouraging, considering that Bitcoin saw a 24% correction on Jan. 11, in addition to a 19% sell-off ten days later. Yet, there is no evidence that options traders demanded more significant premiums for downside protection.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Futures_premium_held_excessive-optimistic_levels\"><\/span>Futures premium held excessive-optimistic levels<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>By measuring the expense gap between futures and the regular spot market, a trader can gauge the level of bullishness in the market.<\/p>\n<p>The 3-month futures should usually trade with a 6% to 20% annualized premium (basis) versus regular spot exchanges. Whenever this indicator fades or turns negative, this is an alarming red flag. This situation is known as backwardation and indicates that the market is turning bearish.<\/p>\n<p>On the other hand, a sustainable basis above 20% signals excessive leverage from buyers, creating the potential for massive liquidations and eventual market crashes.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-02\/5bc95007-ba33-45f2-9596-d170250bc2b4.png\"><figcaption style=\"text-align: center;\"><em>Mar. 2021 BTC futures premium. Source: <\/em><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.digitalassetsdata.com\/\"><em>NYDIG Digital Assets Data<\/em><\/a><\/figcaption><\/figure>\n<p>The above chart shows that the indicator bottomed at 1.5% on Jan. 27 but later reverted to 4.5% and higher as Bitcoin rebounded above $35,000. Even during its darkest periods, the futures premium held above 10% annualized rate, indicating optimism from professional traders.<\/p>\n<p>Meanwhile, the current 5.5% level, equivalent to a 50% annualized rate, indicates excessive buyers&#8217; leverage. Perpetual futures (inverse swaps) could be the root of this issue, and retail traders more widely use those contracts.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-02\/d63fbbd9-a5ef-4122-873e-3482014e231f.png\"><figcaption style=\"text-align: center;\"><em>Weekly BTC perpetual futures funding rate. Source: <\/em><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.digitalassetsdata.com\/\"><em>NYDIG Digital Assets Data<\/em><\/a><\/figcaption><\/figure>\n<p>Take notice as the funding rate has exceeded 2.5% per week, thus more than compensating the 50% annualized premium of the March contracts.<\/p>\n<p>Therefore, arbitrage desks and market makers are likely happy to pay such a hefty premium on fixed-month contracts while simultaneously shorting the perpetual future and profit from the rate difference.<\/p>\n<p>To conclude, this movement perfectly explains why options markets are relatively neutral while futures markets show excessive buyers&#8217; leverage. While institutional clients and whales dominate options volumes, retail traders seem to be the root of such mismatch.<\/p>\n<p><em>The views and opinions expressed here are solely those of the <\/em><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/twitter.com\/noshitcoins\"><em>autho<\/em><em>r<\/em><\/a><em> and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.<\/em><\/p>\n<p><template data-name=\"subscription_form\" data-type=\"markets_outlook\"><\/template><\/div>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/is-a-retail-frenzy-causing-the-bitcoin-futures-markets-excessive-leverage\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# Is a retail frenzy causing the Bitcoin futures&#8217; markets excessive leverage? &#8221; Bitcoin (BTC) has breached the $50,000 level on Feb. 16. But while failing to cleanly break the psychological barrier, it undoubtedly displayed the potential for even higher valuations. Meanwhile, futures and options indicators are misaligned, signaling excessive buyers&#8217; leverage, while options markets&#8230;<\/p>\n","protected":false},"author":1,"featured_media":179578,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/images.cointelegraph.com\/images\/1200_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjEtMDIvMDE0MGNlM2YtOGI5Zi00ODQwLWE2ZTYtOTBmNjQ2M2NlNDgxLmpwZw==.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[74862,74972,81209,74937,74939,73785],"class_list":["post-179577","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-bitcoin","tag-bitcoin-futures","tag-bitcoin-options","tag-bitcoin-price","tag-market-analysis","tag-markets"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/179577","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=179577"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/179577\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/179578"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=179577"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=179577"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=179577"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}