Making money in a bull market filled with hot money is much easier than in a bear market. However, determining when the market is overheated or at its peak is a challenging task. Some people use indicators such as sustainable contract funding rates and social sentiment 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 contracts and the current month’s contracts traded on major exchanges such as the Chicago Mercantile Exchange and Deribit can quickly determine the speculative level of the current market.
Generally speaking, the term structure is in contango, meaning that futures contracts with longer expiration times are traded at higher prices compared to contracts with shorter expiration times. For example, if you purchase a futures contract with a long time until expiration (e.g., several months or years), you may need to pay a higher price than those contracts expiring in the short term. This premium reflects the additional cost and uncertainty of holding longer-term contracts.
When market speculation sentiment is high, investors are willing to pay higher premiums to hold long positions. As a result, the price difference between the next month’s contracts and the current month’s contracts widens. Griffin Ardern stated in the interview that signs of this can be observed in the Deribit and CME markets.
Based on past trading records, the price difference between the CME Bitcoin next month contracts and the current month contracts expanded to over $1,000 twice in late February and mid-October 2021, indicating a frenzy of speculation and subsequent market corrections within a few weeks. In other words, a wider price difference may be a sign that the bull market is in its final stage.
What’s more important is that this month, the CME Bitcoin contracts have once again shown a price difference of over $1,000, which is a potential warning for Bitcoin bulls. It is worth continuing to monitor whether a replication of past trends will occur.
(Reprinted with permission from GT Radar)
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GT Radar focuses on building long-term and stable growth quantitative investment portfolios, with over 10 years of experience in stock and cryptocurrency quantitative trading. The trading system combines over 150 strategies, aiming to provide high adaptability and flexibility to ensure profitable returns from the market in the most robust manner. Currently, our assets under management (AUM) in Binance have exceeded $1.5 million USDT.
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