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The BTC derivative market is an oracle for future price

Discussion in 'The Kruse Longevity Center' started by Jack Kruse, Feb 20, 2021.

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  1. Jack Kruse

    Jack Kruse Administrator

    As Bitcoin set new highs this week, derivatives traders kept the average funding rate for Bitcoin perpetual swaps low. This suggests that they are expecting BTC to climb further.

    According to data from blockchain analytics firm Glassnode, the average funding rate for Bitcoin (BTC) perpetual swaps across major cryptocurrency exchanges remains at 0.05%.

    This is despite BTC rallying over 21% this week, breaking the $50k mark to set a new all-time high of $57,752.78


    The lack of any marked increase in funding rates for the novel swaps suggests a couple of things right now in Feb 2021 in the BTC ecosystem. First of all: investors and traders are buying BTC in the spot markets rather than using leverage.

    Moreover, the average funding rate remaining slightly above zero indicates that traders doing BTC perpetual swaps are not ready to enter short positions just yet, despite the top cryptocurrency’s record high price. In other words – they don’t see the price dropping.

    Compounded together, these two observations suggest the market expects BTC to go even higher.

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    A perpetual swap (or future) is an advanced form of financial instrument. It allows traders to bet on the future price of an underlying asset, in this case, BTC.

    A normal future obligates a trader to buy its underlying asset at a pre-agreed price at a specific date in the future. This date is called the future’s “expiration” or “settlement” date.

    Traders can also trade futures in a futures’ market before the settlement date. This means the price of futures can change. However, as the settlement date approaches, the future’s price normally converges to the price of the underlying asset.

    Perpetual futures differ in that they have no settlement date; traders can hold them in perpetuity unless liquidated. Accordingly, their prices can diverge drastically from the underlying asset (if traded) as they have no settlement date to anchor them.

    Therefore, major cryptocurrency exchanges use a funding rate mechanism to help keep the price of perpetual futures close to the price of their underlying assets.

    The funding rate comprises of an interest rate, set by the exchange, and a premium (the price difference between the future and the asset), set by the market.

    When the price of the perpetual future is significantly higher than its underlying asset, the funding rate increases and vice versa.

    The funding rate is paid between traders depending on whether it is positive or negative. In other words, long position holders pay short position holders when the funding rate is positive and vice versa.

    On most exchanges, the payment occurs after a set interval (e.g. on Binance, traders make payments every eight hours).

    100K coming for #BTC?

    Perpetual swap traders inevitably make decisions based on the market of the underlying asset. However, their decisions often provide an insight into the level of risk the market is willing to assume.

    In this case, as Bitcoin soared past the $40,000 mark and then the $50,000 mark, traders seemingly opted to buy and hold BTC itself rather than use leverage.

    As a result, the funding rate remained low. Moreover, historically, as BTC rallied without a break in sight, short traders came out in droves.

    This time around they seem non-existent.
     
  2. Jack Kruse

    Jack Kruse Administrator

    Following the first halving in November 2012, Bitcoin’s price increased from a $2.01 bottom to the top of $270.94 – a 13,000 percent increase. The second halving, in July of 2016, saw Bitcoin go from a bottom of $164.01 a top of $20,074 – a similar increase of 12,000 percent.

    With this in mind, if Bitcoin moves similarly after May’s 2020 halving, investors can expect the price of the coin to reach as high as $400,000. BTC#18 covers the mathematics of the halving cycles. https://www.patreon.com/posts/46664740
     
    Sean Waters likes this.
  3. Jack Kruse

    Jack Kruse Administrator

    The value of via negativa: It's more important to do big things well than to do the small things perfectly. But when people disagree on the importance of debating something, it probably should be debated.
     
  4. Jack Kruse

    Jack Kruse Administrator

    What does the Pi cycle indicate?
    This indicator’s main argument is apparent: Whenever the 111-day DMA crosses the 350-day DMA x 2, it is the signal for the bitcoin cycle’s peak.

    [​IMG]

    I do not believe in technical analysis. The past is no predictor of future action in an asymmetric asset.
    In a world of advanced technical analysis, where seasoned traders and market analysts use a whole spectrum of complex indicators, concepts, and data, such a simple indicator can be a smile of pity. However, the effectiveness it has shown in the previous cycles is interesting. I personally do not think this cycle is like the 2013 or 2017 so for me, I don't take it more seriously. But I do look at it when we are in the honey pot.
     
    Sean Waters and GavinH like this.
  5. Jack Kruse

    Jack Kruse Administrator

    Thus far, for every halving cycle Bitcoin has been experiencing exponential growth. Nobody is complaining about that.

    But the thing is, most people have a hard time wrapping their heads around what exponential growth means.

    So here is another way to look at it: how long does it take for Bitcoin’s value to double?

    How long did it take for Bitcoin to go from its halving price to double that value? And how long to double again after that? And again?

    After the first halving it took roughly: 77 days to double first, then 35 days to double again, followed by 15 days, 217 days, and finally 12 days. Note that the numbers above are totally random. This is why I think this halving honey pot will be different than all the others.

    Right shifted and drawn out is most likely. So based on my guess we go above 217 days this time.
     
    Sean Waters likes this.
  6. Jack Kruse

    Jack Kruse Administrator

    During this cycle 2020-21, the first doubling took 6 months. The second doubling took less than 2 months.

    Currently, we have been waiting for less than 3 months to see the next doubling. Target: $74k.

    The March contracts expired last Friday (3/31) so it’s no big surprise the trading activity is down again.
     
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