The price of Bitcoin (BTC) finally woke up and rose to a new high in 2020. However, when the markets exceeded $ 10,000, Some traders seem to have opened excessively leveraged long positions.
This effect became more noticeable when the financing rate for permanent contracts reached 12.4% per month, the second highest level this year.
Financing alone should not be seen as a red flag, especially in short-term periods. The problem is mainly in the contango, also known as the futures base, which has been unusually high in the past few days. This indicates that professional traders have high leverage on the buyer side.
Most of these leveraged positions are in the profit zone as the contango exceeded an annualized rate of 10% before the $ 10,400 level broke. To confirm whether this optimism is in a controlled situation, the option markets should also be assessed and determined when the 25% delta bias shows signs of stress.
The BitMEX funding rate peaked at 12 months
BitMEX is currently one of the top 3 futures exchanges in terms of measured open positions. The stock exchange in turn provides clear reports on its financing rate.
Perpetual contracts, also called reverse swaps, They require adjustments over a funding rate within 8 hours. This depends on the number of active levers compared to the short ones.
The unlimited funding rate of Bitcoin for 8 hours. Source: BitMEX
BitMEX’s funding rate recently stood at 0.13%, meaning buyers pay 12.4% a month to keep their positions long-term. Such a level is unprecedented, but over time it creates an uncomfortable situation for long and eternal contract holders.
Contango is approaching dangerous levels
Checking this metric is important because contango measures the premium for long-term futures contracts at the current spot level. Professional traders are generally more active than retailers with such instruments, as their prices fluctuate more in addition to the effort involved in dealing with expiry dates.
These contracts are usually traded for a small premium. This suggests sellers charge more money to keep billing longer.
Annualized basis for 3-month Bitcoin futures. Source: Skwe
The annualized 3-month futures base rose more than 10% annually a few days ago and is currently at its highest level since the beginning of March. These strong annual rates of 15% indicate that professional traders in the spot markets pay a substantial premium and therefore have a high level of debt on the buyer side.
No established level becomes intolerable for its owners, Although a secondary market from here will make long leveraged positions much more expensive.
The option markets show no signs of excessive optimism
Whenever markets enter a scenario of overconsciousness, option markets tend to present unusual data. The 25% delta bias measures how the most expensive market rates bullish call options versus equivalent bearish put options.
25% delta bias of Bitcoin options. Source: Skew
The 25% delta bias, which is considered an indicator of fear / greed, is currently 12% negative, which means that upward protection is more expensive.
Once again, Indeed, this is not a worrying level Some will say that after such an impressive run of $ 2,000 in less than a week, it’s natural.
Leveraged bulls seem to be comfortable right now
Even exceeding an annualized interest rate of 100% is not uncommon in the derivative markets, mainly because the positions are not held for long. However, no trader would be willing to maintain a lever position in the side markets for more than a few weeks.
Highly indebted positions could also indicate that traders hope to close them as soon as possible. Professional investors know that others closely monitor such indicators and use this information to their advantage. Others could have drawn their profits and left only profit as a margin, and this could also contribute to the current phenomenon of excessive leverage.
Long contract holders currently seem so comfortable that they are in no hurry to close their positions. This could change if the $ 10,400 level is retested. However, there are currently no signs of weakness in the derivatives markets.
The views and opinions expressed here are solely those of author and do not necessarily reflect Cointelegraph’s views. Every investment and trade movement involves risks. You have to do your own research when making a decision.