Bitfinex Bitcoin longs hit a record-high, but does that mean BTC has bottomed?

June 6, 2022 Coin Telegraph

bitfinex

A key derivatives metric used by margin traders has hit a record-high, but there’s plenty of risk and a catch to consider.

Bitcoin (BTC) has been unable to close above $32,000 for the past 28 days, frustrating bulls and pushing the Fear and Greed index to bearish levels below 10. Even with June 6’s small boost, the tech-heavy Nasdaq stock market index is down 24% year-to-date.

Investors who keep a close eye on regulatory development were possibly scared after New York state made clear its intention to regulate the crypto industry, including Bitcoin mining.

On June 2, New York Attorney General Attorney Letitia James issued an investor alert against "risky cryptocurrency investments," citing the assets' volatility. According to Cointelegraph, the attorney general is convinced that crypto investments create "more pain than gain" for investors.

The New York State Senate approved a proof-of-work (PoW) mining ban on June 2 and the proposed controversial bill aims to prohibit any new mining operations in the state for the next two years and is now headed for the governor's desk.

Interestingly, as all of this takes place, Bitcoin derivatives traders have never been so bullish, according to one metric.

Margin traders are extremely bullish

Margin trading allows investors to leverage their positions by borrowing stablecoins and using the proceeds to buy more cryptocurrency. When those savvy traders borrow Bitcoin, they use the coins as collateral for shorts, meaning they are betting on a price decrease.

That is why some analysts monitor the total lending amounts of Bitcoin and stablecoins to gain insight into whether investors are leaning bullish or bearish. Interestingly, Bitfinex margin traders entered their highest ever leverage long (bull) position on June 6.

*Bitfinex BTC margin longs (blue), in BTC contracts. Source: TradingView*

Bitfinex margin traders are known for creating position contracts of 20,000 BTC or higher in a very short time, indicating the participation of whales and large arbitrage desks.

Notice that the longs (bull) indicator vastly increased in mid-May and currently stands at 90,090 BTC contracts, its highest-ever registry. To understand how severe this movement was, one might compare it to the June–July 2021 previous all-time high of 54,500 BTC contracts in longs.

These traders hit the bullseye as their bullish positions peaked right as Bitcoin price bottomed. Over the subsequent months, they could sell those long (bull) contracts at a profit, reducing the number of open long positions (blue line).

Sometimes even whales get it wrong

One might assume that these whales and arbitrage desks trading at Bitfinex margin markets have better timing (or knowledge), and thus it makes sense to follow their steps. However, if we analyze the same metric for 2019 and 2020, a completely different scenario emerges.

There were three hikes in the number of Bitfinex BTC margin longs this time around. The first instance happened between mid-November and mid-December 2019 after the indicator jumped from 25,200 BTC to 47,600 BTC longs. However, over the next month, the Bitcoin price failed to break above $8,300 and these traders closed their positions with minimal gains.

The next wave of BTC longs took place in early-February 2020, but those traders were caught by surprise after the Bitcoin price failed to break $10,500, forcing them to close their margin positions at a considerable loss.

Bitfinex BTC margin longs increased from 22,100 to 35,700 contracts in late-July 2020. The movement coincided with the price rally to $47,000, so the early entrants might have scored some profit, but most of the investors exited their margin longs with no gains.

Clever margin longs might be right 75% the time, but there's a catch

To put things in perspective, over the previous four instances where BTC margin longs (bulls) significantly increased, investors had 1 profitable trade, 2 mostly neutral, and 1 considerable loss.

Some might say odds still favor those tracking the indicator, but one must remember that whales and arbitrage desks could easily crash the market when closing their positions. In such cases, those following the strategy might arrive late to the party and come out at a loss.

Will the current Bitfinex margin longs increase result in extreme profits? It might depend on how traditional markets, mainly tech stocks, perform over the next couple of weeks.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Crypto Fear and Greed Index Shows ‘Extreme Fear’ and Shaky Sentiment Persist

May 31, 2022 Bitcoin.com

Bitcoin creeps toward $30K, but data shows bears in favor for Friday’s $1.8B BTC options expiry

May 25, 2022 Coin Telegraph

Bitcoin creeps toward K, but data shows bears in favor for Friday’s .8B BTC options expiry

Coin Telegraph

Traders are calling for a “relief rally” to $35,000, but derivatives data shows bears stand to profit from this week’s $1.81 billion BTC options expiry.

Bitcoin (BTC) price has been unable to close above $32,000 for the past fifteen days and is currently down 37% year-to-date. Although that might seem excessive, it does not stand out among some of the largest U.S.-listed tech companies which have also sustained notable losses recently.

In this same 15-day period, Shopify Inc. (SHOP) stock dropped 76%, Snap Inc. (SNAP) crashed 73%, Netflix (NFLX) is down 70% and Cloudflare (NET) presented a negative 62% performance.

Cryptocurrency investors should be less concerned about the current "bear market" considering Bitcoin's 79% annualized volatility. However, that is clearly not the case, because Bitcoin's "Fear and Greed Index" reached an 8 out of 100 on May 17, the lowest level since March 2020.

Traders fear that worsening macroeconomic conditions could cause investors to seek shelter in the U.S. dollar and Treasuries. Japan’s industrial production data released on May 18 showed a 1.7% contraction year over year. Moreover, May 20 retail sales data from the United Kingdom showed a 4.9% decline versus 2021.

Financial analysts across the globe blame the weakened market conditions on the U.S. Federal Reserve's slow reaction to the inflation surge. Thus, traders increasingly seek shelter outside of riskier assets, which negatively impacts Bitcoin price.

Bulls placed most bets above $40,000

The open interest for the monthly May 27 options expiry in Bitcoin is $1.81 billion, but the actual figure will be lower since bulls were caught by surprise as the BTC price has fallen 26% in the last 30 days.

*Bitcoin options aggregate open interest for May 27. Source: CoinGlass*

The 1.31 call-to-put ratio reflects the $1.03 billion call (buy) open interest against the $785 million put (sell) options. Nevertheless, 94% of the bullish bets will likely become worthless as Bitcoin currently trades near $30,000.

If Bitcoin's price remains below $31,000 on May 27, bulls will only have $60 million worth of these call (buy) options available. This difference happens because there is no use in a right to buy Bitcoin at $31,000 if it trades below that level on expiry.

Bears can secure a $390 million profit on May 27

Below are the three most likely scenarios based on the current price action. The number of options contracts available on May 27 for call (buy) and put (sell) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $28,000 and $30,000: 800 calls (buy) vs. 14,200 puts (sell). The net result favors bears by $390 million.
Between $30,000 and $32,000: 2,050 calls (buy) vs. 11,200 puts (sell). Bears have a $250 million advantage.
Between $32,000 and $33,000: 5,650 calls (buy) vs. 9,150 puts (sell). The net result favors bears by $110 million.

This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.

For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price, but unfortunately, there's no easy way to estimate this effect.

Bitcoin bears need to sustain the price below $30,000 on May 27 to profit $390 million from the monthly options expiry. On the other hand, bulls can reduce their loss by pushing BTC above $32,000, an 8% rally from the current $29,700 price. However, judging by the bearish macroeconomic conditions, bears seem better positioned for May 27 expiry.

Altcoin prices briefly rebounded, but derivatives metrics predict worsening conditions

May 20, 2022 Coin Telegraph

Asia

Declining demand for Tether and negative futures premiums for altcoins reflect a growing disinterest from crypto investors.

On May 12, the total crypto market capitalization reached its lowest close in 10 months and the metric continues to test the $1.23 trillion support level. However, the following seven days were reasonably calm while Bitcoin (BTC) gained 3.4% and Ether (ETH) added a modest 1.5%. Presently, the aggregate crypto cap stands at $1.31 trillion.

*Total crypto market cap, USD billion. Source: TradingView*

Ripples from Terra's (LUNA) collapse continue to impact crypto markets, especially the decentralized finance industry. Moreover, the recent decline in traditional markets has led to a loss of $7.6 trillion in market cap from the Nasdaq Stock Market Index, which is higher than the dot-com bubble and the March 2020 sell-offs.

On May 17, U.S. Federal Reserve Chairman Jerome Powell confirmed their intention to suppress inflation by raising interest rates but he cautioned that the Fed's tightening movement could impact the unemployment rate.

The bearish sentiment spilled to crypto markets and the "Fear and Greed Index," a data-driven sentiment gauge, hit 8/100 on May 17. This is the metric’s lowest value since March 28, 2020, two weeks after the generalized crash that sent oil futures to negative levels and brought Bitcoin (BTC) below $4,000.

Below are the winners and losers from the past seven days. While the two leading cryptocurrencies presented modest gains, a handful of mid-capitalization altcoins rallied 15% or higher.

*Weekly winners and losers among the top 80 coins. Source: Nomics*

Monero (XMR) rallied 22% as investors awaited the "tail emission" to be implemented at block 2,641,623 or sometime around June 4. The community decided to include a 0.6 XMR minimum reward in every block, so miners are not 100% reliant on transaction fees.

Cosmos (ATOM) gained 16.5%, a movement that seems a part of a broader retracement that started on May 12 when ATOM fell to its eleven-month low near $8. It is worth noting that its parent chain, Cosmos Hub, witnessed massive capital outflows from its liquidity pools, according to reporting from Cointelegraph.

Klaytn (KLAY), a blockchain-backed by South Korean internet giant Kakao, announced on May 16 that it would provide infrastructure, and initial nodes, and develop early use cases for the Blockchain-based Service Network (BSN), providing an entry into the Chinese market

The Tether premium shows slight discomfort

The OKX Tether (USDT) premium is a good gauge of China-based retail trader crypto demand. It measures the difference between China-based peer-to-peer (P2P) trades and the United States dollar.

Excessive buying demand tends to pressure the indicator above fair value at 100% and during bearish markets, Tether’s market offer is flooded and causes a 4% or higher discount.

*Tether (USDT) peer-to-peer vs. USD/CNY. Source: OKX*

The Tether premium peaked at 5.4% on May 12, its highest level in more than six months, but the movement could have been related to the Terra ecosystem’s massive outflows, which were mainly the USD Terra (UST) stablecoin.

More recently, the indicator showed a modest deterioration as it currently holds a 1.8% discount. The lack of retail demand is not especially concerning because the total cryptocurrency market capitalization lost 34% in the past month.

Altcoin futures reflect disinterest in leverage

Perpetual contracts, also known as inverse swaps, have an embedded rate that is usually charged every eight hours. Exchanges use this fee to avoid exchange risk imbalances.

A positive funding rate indicates that longs (buyers) demand more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.

*Accumulated perpetual futures funding rate on May 20. Source: Coinglass*

Perpetual contracts are reflecting mixed sentiment as Bitcoin and Ethereum hold a slightly positive (bullish) funding rate, but altcoins signal the opposite. For example, Solana's (SOL) negative 0.35% weekly rate equals 1.5% per month, which is not a concern for most derivatives traders.

Considering that derivatives indicators are showing little improvement, there's a lack of trust from investors as the total crypto market capitalization battles to keep the $1.23 trillion support. Until this sentiment improves, the odds of an adverse price movement remain high.

While Markets Consolidate, Crypto Fear and Greed Index Points to ‘Extreme Fear’

April 16, 2022 Bitcoin.com

Crypto Fear and Greed Index Hits ‘Greed’ for the First Time in 4 Months

March 28, 2022 Bitcoin.com

Here Are the Only Two Scenarios for Bitcoin (BTC) in the Near Future, According to Top Crypto Trader

February 23, 2022 The Daily Hodl

Is the bottom in? Data shows Bitcoin derivatives entering the ‘capitulation’ zone

January 25, 2022 Coin Telegraph

basis

A key risk indicator for BTC options hit its highest level in six months, possibly signaling that $32,930 was the bottom.

Analysts love to issue price predictions and it seems that nine out of 10 times they are wrong. For example, how many times did analysts say "we will never see Bitcoin back at X price again," only to see it plunge well below that level a few months later?

It doesn't matter how experienced a person is or how connected in the industry. Bitcoin's (BTC) 55% volatility must be taken seriously and the impact this has on altcoins is usually stronger during capitulation-like movements.

I was undeniably wrong about how much crypto could fall from macro contagion.

I remain bullish on the space as a whole and think it is the most important mega-trend of our times.

I joined CT during 2018 and I will be here with you guys in the coming yrs, bull or bear.
— Zhu Su (@zhusu) January 24, 2022

For those unfamiliar with the case, on Dec. 7, Zhu Su's Three Arrows Capital acquired $676.4 million worth of Ether (ETH) after its price collapsed 20% over 48 hours. Zhu went as far as saying that he would continue to buy "any panic dump," despite acknowledging that Ethereum fees were unsuitable for most users.

To understand whether there is still an appetite for bearish bets and how pro traders are positioned, let’s take a look at Bitcoin’s futures and options market data.

Futures traders are unwilling to short

The basis indicator measures the difference between longer-term futures contracts and the current spot market levels. A 5% to 15% annualized premium is expected in healthy markets and this price gap is caused by sellers demanding more money to withhold settlement longer.

On the other hand, a red alert emerges whenever this indicator fades or turns negative, a scenario known as "backwardation."

*Bitcoin 3-month futures basis rate. Source: Laevitas.ch*

Notice how the indicator held the 5% threshold despite the 52% price correction in 75 days. Had pro traders effectively entered bearish positions, the basis rate would have flipped closer to zero or even negative. Thus, data shows a lack of appetite for short positions during this current corrective phase.

Options traders are still in the "fear" zone

To exclude externalities specific to the futures instrument, traders should also analyze the options markets. The 25% delta skew compares similar call (buy) and put (sell) options. The metric will turn positive when fear is prevalent because the protective put options premium is higher than similar risk call options.

The opposite holds when greed is prevalent, causing the 25% delta skew indicator to shift to the negative area.

*Bitcoin 30-day options 25% delta skew. Source: Laevitas.ch*

The 25% skew indicator flipped to the "fear" area as it moved above 10% on Jan. 21. That 17% peak level was last seen in early July 2021, and curiously, Bitcoin was trading at $34,000 back then.

This indicator might be interpreted as bearish when considering that arbitrage desks and market makers are overcharging for downside protection. Still, this metric is backward-looking and usually predicts market bottoms. For example, just two weeks after the skew indicator peaked at 17% on July 5, Bitcoin price bottomed at $29,300.

Correlation with traditional markets is not so relevant

It is worth noting that Bitcoin has been on a downtrend for the past 75 days, and this is before the Federal Reserve's tightening discourse on Dec. 15. Moreover, the increased correlation with traditional markets does not explain why the S&P 500 index peaked on Jan. 4, while Bitcoin was already down 33% from the $69,000 all-time high.

Considering the lack of bears' appetite to short BTC below $40,000 and options traders finally capitulating, Bitcoin shows little room for the downside.

Furthermore, Bitcoin futures liquidation over the past week totalled $2.35 billion, which significantly reduced buyers' leverage. Of course, there are no guarantees that $32,930 was the final bottom, but short sellers will likely wait for a bounce before entering bearish positions.

Ethereum futures and options data reflects traders’ mixed emotions on $3.2K ETH price

January 11, 2022 Coin Telegraph

Ethereum futures and options data reflects traders’ mixed emotions on .2K ETH price

CBDC

ETH’s futures markets are slightly bearish, but options traders appear to be interpreting the rally to $3,200 as a bottoming signal.

Ether (ETH) has been an emotional rollercoaster over the past three months primarily because its price rallied twice. First, it peaked at $4,870 on Nov. 10 and at $4,780 on Dec. 1. However, the double top was quickly followed by a harsh rejection, which led to $490 million in long futures contract liquidations in 48 hours.

Once again, hope was instilled on Dec. 8 after Ether commenced to rally 28.5% in four days to retest the $4,400 support. Soon after, the downtrend continued, leading to the $2,900 bottom on Jan. 10, which was the lowest ETH price seen in 102 days. This low marked a 40% low from the $4,870 all-time high and caused traders to question whether a bear market had been set.

*Ether/USD price at FTX. Source: TradingView*

One might argue that Ether is simply following Bitcoin's 42% correction from the Nov. 10 all-time high at $69,000 and the most recent pullback has partially been attributed to the United States Federal Reserve's potential tighter monetary policies and Kazakhstan's political turmoil impact on mining.

This simplistic analysis leaves behind some crucial developments, such as China's official digital yuan wallet becoming the most downloaded app in local mobile app stores on Jan. 10. Furthermore, a pilot version of the nation’s central bank digital currency (CBDC) is being used in select cities and it also became available for download on app stores on Jan. 4.

Even with the fiscal policy pressure and negatively skewed price action, traders should still monitor the futures contracts premium (basis rate) to analyze how bullish or bearish professional traders are.

Futures traders are becoming more anxious

The basis indicator measures the difference between longer-term futures contracts and the current spot market levels. A 5% to 15% annualized premium is expected in healthy markets. This price gap is caused by sellers demanding more money to withhold settlement longer.

However, a red alert emerges whenever this indicator fades or turns negative, a scenario known as "backwardation."

*Ether 3-month futures basis rate. Source: Laevitas.ch*

Notice how the indicator peaked at 20% on Nov. 8 as Ether surpassed $4,800, but then gradually faded away to an 8% low on Dec. 5 after ETH flash crashed to $3,480. More recently as Ether touched a $2,900 low on Jan. 10, the basis rate moved to 7%, which is its lowest level in 132 days.

Consequently, professional Ether traders are not comfortable despite the 10% recovery to $3,200 on Jan. 11.

Options traders recently flipped neutral

To exclude externalities specific to the futures instrument, one should also analyze the options markets. The 25% delta skew compares similar call (buy) and put (sell) options. The metric will turn positive when fear is prevalent because the protective put options premium is higher than similar risk call options.

The opposite holds when greed is the prevalent mood causing the 25% delta skew indicator to shift to the negative area.

*Ether 30-day options 25% delta skew. Source: TradingView*

When market makers and whales are bearish, the 25% delta skew indicator shifts to the positive area, and readings between negative 8% and positive 8% are usually deemed neutral.

Ether option traders entered "fear" mode on Jan. 8 as the 25% delta skew surpassed the 8% threshold, peaking at 11% two days later. However, the quick bounce from the $2,900 low instilled confidence in Ether options traders and also moved the options "fear and greed" metric to a meager 3%.

At the moment, there is not a consensus sentiment-wise from Ether traders because futures markets indicate slight discontent and options arbitrage desks and whales have recently abandoned their bearish stance. This makes sense because the current $3,200 price is still reflecting the recent 15% weekly drop and is far from exciting.

Market Analyst Says ‘Whole Crypto Sphere Is in a Bear Market’ as Prices Continue to Slide Lower

December 14, 2021 Bitcoin.com

Fear