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Bitcoin futures premium hits 30% but analyst says ‘This time it’s different’

Bitcoin futures premium hits 30% but analyst says ‘This time it’s different’

The 30. March could well be a historic day that bitcoin (BTC) enthusiasts will remember for a long time to come. In addition to the official confirmation that PayPal will launch on the 25th. March will support crypto payments for US customers, PayPal marked a 17% recovery from the $50,300 low. In addition, CME Group has announced that its futures contracts for microbitcoin will close on the 3rd. May with contract sizes starting at 0.1 BTC per unit.

More bullish news came when Morning Brew, a daily business newsletter with 2.5 million subscribers, finally dumped gold and now displays the price of bitcoin in its market section alongside the S&P 500, Nasdaq, Dow, 10-year Treasury and JPMorgan stocks.

Bitcoin futures premium hits 30% but analyst says ‘This time it’s different’

The 30. March also marks 3 weeks of BTC prices when the daily candle closes above $50,000. So now that the market is in a healthy consolidation phase, traders need to keep an eye on the amount of leverage investors are using. Historically, declines occur when buyers are overly optimistic, and any sudden price change of more than 8% tends to trigger larger cascading liquidations.

BTC price on Binance, USD. Source: TradingView

The open interest in bitcoin futures shows the size of current long and short positions, and when this number increases significantly, it means that investors are exposed to higher risk. This shows growing market interest in this asset, but at the cost of a potentially large liquidation.

BT FuturesAggregated open interest in US dollars. Source: Bybt

The chart above shows a 105% increase in open interest in futures contracts over the past two months. Meanwhile, the current value of $22.6 billion is only 2% below the record level.

While the rise in bitcoin prices may explain some of the jump, it also reflects an increase in confidence as bitcoin prices rose between the 14th and the 24th. In March, $7.4 billion was liquidated.

To understand how professional traders rise or fall, you need to analyze the underlying price of futures contracts. The basis is often called the futures premium and measures the difference between long-term futures contracts and the current cash market level.

An annual premium (base) of 10% to 20% is interpreted as neutral or a situation known as contango. This price difference is due to the fact that sellers charge more money to hold the account longer.

OKEx BTC Futures 3 Month Basis. Source: Crouch.

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Bitcoin futures premium hits 30% but analyst says ‘This time it’s different’

On the 13th. In March, the BTC markets entered an excessive averaging situation as the base rate approached 35%. Optimism, especially in a bull market, should not be a cause for concern. However, when the price fell 11% after reaching a record high of $61,800, these overzealous buyers closed their positions.

This time the base rate is 29%, which is quite high, but this figure could be adjusted in the coming days. These leveraged buyers can either increase their margin or buy BTC on the regular cash exchanges and then reduce their futures positions.

Although long positions appear to be overcrowded, there are currently no signs of potential market stress that would indicate a negative outcome should the price of BTC drop to $53,000. Since most of the recent rise in open interest occurred in early March, the average price of long positions is probably not much higher than that.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph. Every investment and every stage of trading involves risk. You should do your own research before making a decision.

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