Bitcoin PERP/SPOT Sentiment Index

# Bitcoin PERP/SPOT Sentiment Index

A comprehensive Pine Script indicator that measures market sentiment by analyzing the premium/discount between Bitcoin perpetual futures and spot prices across multiple cryptocurrency exchanges.

## 📊 Overview

The Bitcoin PERP/SPOT Sentiment Index provides traders with deep insights into market psychology and risk appetite in the cryptocurrency ecosystem. By calculating the price difference (premium/discount) between perpetual futures contracts and spot prices, it reveals how traders are positioned and their sentiment toward Bitcoin's price direction.

**Key Insight**: The premium between PERP and SPOT prices is a powerful sentiment indicator that reflects trader positioning, risk appetite, and market psychology - data that influences but is separate from actual exchange funding rates.

## 🎯 Core Functionality

### Premium Calculation Methodology

The indicator calculates market sentiment using the following approach:

1. **Multi-Exchange Data Collection**: Fetches real-time prices from major exchanges for both perpetual futures (PERP) and spot markets
2. **TWAP Calculation**: Computes time-weighted average prices for both market types to reduce noise
3. **Premium Analysis**: Calculates the percentage difference between PERP and SPOT prices
4. **Sentiment Smoothing**: Applies time-weighted smoothing for stable sentiment readings

**Formula**: `Premium = (PERP_TWAP / SPOT_TWAP - 1) × 100`

### Market Sentiment Insights

**Positive Premium (PERP > SPOT) = Risk-On Sentiment**
- Traders prefer leveraged long positions via perpetuals
- High risk appetite and bullish expectations
- Willingness to pay premium for leverage access
- Often coincides with FOMO and greed phases

**Negative Premium (PERP < SPOT) = Risk-Off Sentiment**
- Traders prefer spot holdings or short perpetuals
- Fear-driven behavior and bearish expectations
- Spot premium indicates institutional accumulation
- Often coincides with capitulation and fear phases

### Exchange Coverage

**Perpetual Futures (17 markets)**:
- Bitmex (USD, USDT)
- Binance (USDT, USD)
- Bitget (USD, USDT, USDC)
- Bybit (USDT, USD)
- Phemex (USD, USDT)
- Huobi, Kraken, OKX (USD, USDT)
- Deribit, BingX

**Spot Markets (12 markets)**:
- Bitstamp, Binance, Coinbase
- Phemex, Huobi, Kraken, OKX
- Kucoin (USDT, USDC)
- Bitget (USDT, USDC)
- BTC Index

## 🎛️ Exchange Selection Modes

### 1. "Most Relevant Exchanges" (Default) ⭐

**Why this selection provides the best sentiment analysis:**

This preset focuses on exchanges that most accurately reflect true market sentiment by prioritizing:

#### **Institutional & Retail Balance**
- **Diverse User Base**: Includes exchanges serving both institutional (Coinbase, Kraken) and retail (Binance, Bybit) traders
- **Geographic Diversity**: Balances Western and Asian markets for global sentiment representation
- **Regulatory Clarity**: Focuses on exchanges with clear regulatory standing

#### **High-Quality Sentiment Data**
- **Deep Liquidity**: Ensures price movements reflect genuine sentiment, not thin book effects
- **Price Discovery Leaders**: These exchanges set market direction and sentiment trends
- **Reduced Manipulation**: Larger exchanges are less susceptible to artificial price manipulation

#### **Trading Behavior Insights**
- **Leverage Preferences**: Captures where traders actually choose to take leveraged positions
- **Risk Appetite Signals**: Reflects real money sentiment from major market participants
- **Arbitrage Efficiency**: Premium differences here represent actionable sentiment signals

**Included Exchanges**:
- **PERP**: Bitmex (USD/USDT), Binance (USDT/USD), Bybit (USDT/USD)
- **SPOT**: Bitstamp, Binance, Coinbase, Kraken, Kucoin, Bitget (USDT/USDC)

### 2. "All Exchange Data"
- Maximum market coverage for comprehensive sentiment analysis
- Includes smaller exchanges that may reflect niche trading behaviors
- Best for research and identifying sentiment divergences across market segments

### 3. "Excl. OKX and Huobi"
- Focuses on Western and international exchanges
- Useful for analyzing sentiment outside specific jurisdictions
- Maintains broad coverage while addressing regional concerns

### 4. "Individual: Select Below"
- Custom sentiment analysis for specific exchange combinations
- Perfect for testing regional sentiment differences
- Allows focus on specific trader demographics or market segments

## ⚙️ Configuration Options

### Core Settings
- **TWAP Interval**: Time period for price averaging
- **Premium Calculation Interval**: Data fetching frequency for sentiment updates
- **Percentage Rate Timeframe**: Multiplier for annualizing premium rates (e.g., 365 for annual rate)

### Sentiment Analysis Controls
- **Cut High Values**: Filters extreme sentiment spikes (>0.1%, >0.2%, >0.5%, >1.2%)
- **Enable Data Validation**: Automatically filters invalid price data for accurate sentiment
- **Minimum Exchanges Required**: Ensures reliable sentiment calculation (default: 3)

### Advanced Features
- **Sentiment Boost**: Adds realistic trading costs to better reflect actual sentiment impact
- **Moving Average Options**: SMA, WMA, EMA, RMA smoothing for trend analysis
- **Real-time Validation**: Prevents calculation with insufficient data

## 📈 Sentiment Interpretation Guide

### Positive Premium (Blue Bars) - Risk-On Sentiment
- **0-0.1%**: Neutral to slightly bullish sentiment
- **0.1-0.3%**: Moderate bullish sentiment, increasing risk appetite
- **0.3-0.5%**: Strong bullish sentiment, high leverage demand
- **>0.5%**: Extreme greed, potential contrarian signal

**Trading Psychology**: Traders are eager to pay premium for leveraged long exposure, indicating confidence and risk-taking behavior.

### Negative Premium (Red Bars) - Risk-Off Sentiment
- **0 to -0.1%**: Neutral to slightly bearish sentiment
- **-0.1% to -0.3%**: Moderate bearish sentiment, risk reduction
- **-0.3% to -0.5%**: Strong bearish sentiment, fear-driven behavior
- **<-0.5%**: Extreme fear, potential capitulation, contrarian opportunity

**Trading Psychology**: Traders prefer spot holdings or short positions, indicating caution and defensive positioning.

## 🧠 Sentiment Analysis Applications

### 1. **Market Psychology Assessment**
- Gauge overall trader confidence and risk appetite
- Identify shifts from greed to fear (and vice versa)
- Spot emotional extremes that often precede reversals

### 2. **Contrarian Trading Signals**
- Extreme positive premium (>0.5%) = potential sell signal (overconfidence)
- Extreme negative premium (<-0.5%) = potential buy signal (oversold sentiment)
- Divergences between price and sentiment for early reversal detection

### 3. **Risk Management**
- High premium = reduce position size (crowded long trades)
- Low/negative premium = potential opportunity for contrarian positions
- Sentiment trend analysis for position timing

### 4. **Market Timing**
- Premium expansion = momentum continuation likely
- Premium contraction = potential trend exhaustion
- Zero-line crosses = sentiment regime changes

### 5. **Institutional vs Retail Behavior**
- Sustained negative premium often indicates institutional accumulation
- Extreme positive premium suggests retail FOMO and leverage excess

## 🔧 Technical Implementation

### Anti-Repainting Protection
```pine
securemodule(data, intervall, source) =>
request.security(data, intervall, source[1], lookahead=barmerge.lookahead_on)
```

### Data Quality & Sentiment Accuracy
- Price bounds checking (1,000 - 200,000 USD) for realistic data
- Invalid data filtering to prevent sentiment distortion
- Minimum exchange count requirements for reliable sentiment readings
- Outlier detection to filter manipulation attempts

### Performance Optimizations
- Array-based exchange management for efficiency
- Efficient TWAP calculations for real-time sentiment updates
- Modular configuration system for easy customization
- Reduced redundant calculations for faster processing

## 🚀 Key Features (v1.0)

- **Bitcoin PERP/SPOT Sentiment Index**: First public release focused on sentiment analysis
- **Multi-Exchange Aggregation**: Combines data from 17 PERP and 12 SPOT markets
- **Advanced Data Validation**: Robust outlier filtering and data quality controls
- **Configurable Exchange Presets**: Optimized selections for different analysis needs
- **Real-Time Sentiment Analysis**: Live premium calculations with anti-repainting protection

## ⚠️ Important Distinctions

**What This Indicator Measures:**
- ✅ PERP/SPOT price premium (sentiment indicator)
- ✅ Market psychology and risk appetite
- ✅ Trader positioning preferences
- ✅ Leverage demand vs spot preference

**What This Indicator Does NOT Measure:**
- ❌ Actual exchange funding rates (these come from exchange APIs)
- ❌ Real funding costs paid by traders
- ❌ Exact arbitrage profitability
- ❌ Future price direction (sentiment can be wrong)

**Relationship to Funding Rates:**
The premium calculated by this indicator influences actual funding rates, but funding rates also include exchange-specific factors like funding intervals, rate caps, and internal calculations. This premium serves as a leading sentiment indicator that helps predict funding rate direction.

## 💡 Advanced Sentiment Strategies

1. **Sentiment Divergence**: Watch for premium direction differing from price movement
2. **Regime Change Detection**: Monitor sustained shifts in premium sign (+ to - or vice versa)
3. **Volatility Prediction**: Extreme premiums often precede high volatility periods
4. **Correlation Analysis**: Compare with VIX, Fear & Greed Index, and on-chain metrics
5. **Multi-Timeframe Sentiment**: Use different timeframes to identify sentiment trends vs noise