How to predict the price of bitcoin on futures reports

They are eagerly awaited by the real trading sharks. From them you can read the thoughts of whales and catch a whiff of insider information in the camp of major players. With their help, a professional will be able to create for himself a sufficiently focused vision of the cryptocurrency market for the next week or even a month. We're talking about COT futures reports (Commitments of Traders).

On how exactly reports on Bitcoin futures can be useful to traders, Ekaterina Skobitskaya, fund manager portfolio manager Dmitry Perepelkin, tells in a special material for BlockchainJournal the communication department of the crypto-investment fund Inception Fund .

Before we figure out exactly what information and how we can extract from these reports, let us recall what the futures themselves are. A futures contract is a contract to buy or sell a certain asset at a specific time in the future at the current market price.

Let us explain by the example of the box of apples. You are sure that in a week the apples will jump in price and want to make money on it. A futures contract allows you to negotiate with the seller that in a week you will buy from him a box of apples for 50 rubles – this is how much he now stands on the market. In a week, as you expected, apples are getting more expensive up to 60 rubles per box, and you get 50 of them at the expense of a futures contract and earn on the difference. Congratulations, you have successfully entered a long (long position) on a futures contract. But the seller opened a short (short position), as he was counting on a decline in the market: if the apples fell to 40, and you would have bought them under the contract for 50, then he would have won the difference.

A futures contract can be concluded on anything – on commodities, securities, currencies, including cryptocurrency. They can also be resold to others. At the moment, the crypt market is mostly content with bitcoin futures, although it cannot be ruled out that in the future we can see futures for Ethereum . While the contracts for the air does not approve of the regulators.

At the same time, Bitcoin futures are already confidently trading on the CBOE and CME exchanges. True, these tools do not imply the real purchase of Bitcoin for them, all calculations for them go in Fiat. That is, you either win or lose on the difference in currency equivalent, without getting real Bitcoins in your wallet. And when you buy a futures from the one who concluded it before, you do not get bitcoin, but only a contract for it.

Why do we watch futures?

Now that we know the logic behind the conclusion of futures contracts, it becomes clear why it is important to keep track of them. Obviously, if a large number of major players opens a short at the same time, then it is worth thinking about a possible shortfall in the market. Conversely, when the whales begin to swim in long positions, we can expect a reversal. Also, according to the volume in which futures are sold or bought, it is possible to estimate the level of interest in Bitcoin itself, which may affect the market price of an asset.

Where to look?

Futures reports are regularly published by the Commodity Futures Trading Commission (CFTC), one of the main US financial regulators. That is why, by the way, now traders are left without this tool – as a result of the so-called “shatdaun”, the work of the American government is blocked. Until the government comes to an agreement with President Donald Trump on certain issues, regulators will not be able to continue working, and therefore we will not see any reports. It's time for those who have not yet analyzed them, to gain knowledge and approach the new report fully armed!

The reports of the Commission can be found on the official website of the Office . They usually come out on Friday around 3:30 pm EST. On holidays, reports are transferred. In the tab of the link above, we scroll the page down to the list of sites. We need reports in Long format from CME and CBOE.

By clicking on the desired format, we will receive a whole list of reports, among which we specifically need Bitcoin (to save time, look for it through a search on the page – Ctrl + F). Here’s what the latest report from December 18 looks like:

It looks frightening, but in fact the meaning of each column is quite simple. Let's go through their list:

Open Interest – the total number of open contracts, each contract – 5 BTC. After it are the positions for which there is data suitable for the regulations of the report of the Commission.

Non-Commercial is the position of large players who do not fill out the CFTC-40 form. As a rule, speculators and hedge funds fall here. Let's look at the contents of the section. If the concept of longs and shorts, we have already met above, then Spreading – this is something new. Overlapping positions of the same market participants are recorded in this column.

For example, the same speculator has 100 long positions and 50 short positions. In this case, the difference in the number of positions will be entered in the required column (50 contracts in this case are taken into account in long). At the same time, another 50 long and short contracts will be reported as 50 spreading contracts. At the same time, the trader as a rule opens the short and long positions if he wants to insure against possible losses.

Commercial are the official large institutional players who are required to fill out the CFTC-40 form.

Total adds up all positions with the spread.

Nonreportable positions are small market players whose data do not fall under the standard reporting format of the Commission. It is ironic that in most cases they are deceived in their expectations of the market.

Changes in commitments is the difference in the number of different positions compared to last week. In the above report, for example, we see that the institutional institutions closed four longs and shorts this week. If spreading grows at the same time, then the contract holders are not very confident in their position and want to hedge.

Percent of Open Interest – shows the ratio of longs and shorts as a percentage, which is considered taking into account the spreading.

Below is the number of traders in each category; Spreading includes those players who have both longs and shorts open.

The last lines of the report tell us about how many contracts as a percentage in a particular category are concentrated in the hands of four or less traders and eight or less traders. This allows us to estimate how “whales” in the market were whales and how many contracts they got their hands on.

How to analyze this data?

Of course, the most interesting is the change in the number of open and closed positions from week to week. Already on these movements one can guess a lot by the direction of the market and whether there will be any significant movement in the near future.

It is also very interesting to watch the moments when a large number of positions of any orientation are collected in the same hands. This may indicate that the big fish knows something about the upcoming events in its pond and reacts in advance. Institutionalists are especially famous for such insiders.

Different dynamics of numbers may hint at very different scenarios, so we evaluate the data as a whole, try to look at the whole picture.

Is this all theory that in practice?

But in practice, even simple changes in the number of shorts and longs can prompt an experienced trader what to expect from the market. In our experience, report analytics work and make very accurate assumptions (but not infallible, of course). For example, in the latest reports of December 18, with CBOE and CME, we saw the following dynamics:

It shows how large participants shimmer from shorts to long, closing some of the short positions that have already brought them profit on the last fall. The shorts, which were opened from December 11 to December 18, were most likely covered up at the time of analysis. However, there was also no impetus for strong growth in these reports.

Looking at some other factors, we put on the movement of Bitcoin in a certain range:

And they were right, the price of the BTC then really moved in this flat corridor:

Summarizing, we note that for the attentive trader, futures reports are a powerful source of information. However, blindly rely only on them is impossible, it is necessary to use other tools. Indeed, at some point they may simply be inaccessible – as is happening now because of the “shatdaun” of the American government.

In any case, the skill of analyzing this data may yet be useful to you.

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