Making money in a bull market full of hot money is easier than in a bear market. However, determining when the market is overheated or at its peak is a difficult task. Some people use indicators such as perpetual contract funding rates and social media trends to make judgments. But Griffin Ardern, the options trading and research director at BloFin, pointed out in an interview with CoinDesk that tracking the price difference between the next month’s contract and the current month’s contract traded on major exchanges such as the Chicago Mercantile Exchange and Deribit can quickly determine the speculative level of the current market.
Generally, the term structure is in contango, meaning that longer-term contracts in the futures market are traded at higher prices compared to contracts with shorter expiration dates. For example, if you purchase a futures contract with a longer time until expiration (e.g. several months or years), you may need to pay a higher price than those contracts that are expiring in the short term. This premium reflects the additional cost and uncertainty of holding longer-term contracts.
When market speculation is high, investors are willing to pay a higher premium to hold long positions. Therefore, the price difference between the next month’s contract and the current month’s contract expands. Griffin Ardern stated in the interview that signs of this can be seen in the markets of Deribit and CME.
Based on past trading records, the price difference between CME’s Bitcoin next month’s contract and current month’s contract expanded to over $1,000 twice in late February and mid-October 2021. This indicates that speculation has entered a frenzy stage and the market experienced pullbacks in the following weeks. In other words, a wider price spread may be a sign that the bull market is in its final stage.
More importantly, this month, CME’s Bitcoin contract has again shown a price difference of over $1,000. This is a potential warning for Bitcoin bulls, and it is worth continuing to monitor whether it will repeat past trends.
(Reprinted with permission from GT Radar)
About GT Radar
GT Radar focuses on building a long-term and stable quantitative investment portfolio and has over 10 years of experience in stock and cryptocurrency quantitative trading. The trading system integrates over 150 strategies, aiming to provide high adaptability and flexibility to ensure profits are obtained from the market in the most robust manner. Currently, our assets under management (AUM) in Binance have exceeded 1.5 million USDT.
Join GT Radar discussion group
Weekly market analysis report
Successful Conclusion of CoinEx Taiwan’s 7th Anniversary Celebration, Embracing the Arrival of the Web3 Era Hand in Hand with Users
Since its establishment in 2017, CoinEx has been a professional cryptocurrency trading pla…