Bitcoin Traders Seek Further Upside Exposure, Pushing Futures Premiums Higher

Bitcoin futures traders are becoming more bullish with extreme upside leverage.

Apr 13, 2021 at 4:55 p.m. UTC
Updated Sep 14, 2021 at 12:40 p.m. UTC

Bullish bitcoin (BTC) sentiment is growing as the cryptocurrency advanced to a fresh all-time high above $63,000 on Tuesday. The annualized premium between the BTC futures price and spot price is now approaching 50% on three-month contracts. This indicates extreme willingness of traders to obtain upside exposure in BTC futures, according to a new report by Arcane Research, a cryptocurrency research firm.

  • “The current premiums on the retail-focused exchanges are the highest we have registered,” according to Arcane.
  • The premium on the institutional-focused Chicago Mercantile Exchange (CME) is just above 10% annualized versus 50% for retail-focused exchanges such as FTX, BitMex and Deribit.
  • Arcane also noted the lack of liquidity on retail exchanges coupled with the demand for upside exposure as the main reason for the uptrend in futures premiums. The rise in premiums have accelerated since the March 25 price low in BTC around $50,000, which followed a near 19% sell-off.
  • It is possible that sellers have capitulated around that level, which encouraged extreme bullish positioning in the futures market ahead of the recent breakout to a new all-time high.

Chart shows BTC futures premium trending higher for retail-focused exchanges.

Funding rates have also skyrocketed in the perpetual swaps market for bitcoin, which indicates extreme upside leverage.

“Most perpetuals are currently trading at a significant premium to spot,” wrote Arcane. “Leverage is an essential ingredient in the recipe for liquidations, and we would not be surprised to see an influx in long liquidations soon.”

Chart shows the recent rise in the BTC funding rates (the price longs pay to shorts) along with the spot price.

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