Will $30K be a new springboard for Bitcoin bulls?

June 27, 2023 Coin Telegraph

Will K be a new springboard for Bitcoin bulls?

Binance

Bitcoin margin and futures markets display strength as institutional appetite surges after multiple spot ETF requests.

After a failed rally above $31,000 on June 23, Bitcoin (BTC) has sustained the $30,300 resistance for the past three days. Curiously, this happened while gold reached its lowest level in three months, trading at $1,910 on June 22, down from a $2,050 peak in early May.

Investors now question how solid Bitcoin’s $30,000 support is. So analyzing what caused the recent price rally is essential to understanding how traders are positioned on BTC margin and futures markets.

Why did BTC price break above $30,000?

Some analysts attribute Bitcoin’s recent 21.5% gains in 11 days to BlackRock’s spot Bitcoin exchange-traded fund (ETF) filing. But other events might have fueled the cryptocurrency gains. For instance, on June 26, HSBC Bank in Hong Kong reportedly introduced its first local cryptocurrency services using three listed crypto ETFs.

Moreover, the ProShares Bitcoin Strategy ETF, a Bitcoin futures fund, experienced its largest weekly inflow in a year at $65 million, with its assets topping $1 billion. It was the first BTC-linked ETF in the United States and is one of the most popular among institutional investors.

But, more importantly, the U.S. crypto regulatory environment may be improving after a period marked by enforcement actions from the Securities and Exchange Commission (SEC) aimed at exchanges supposedly operating as unregistered securities brokers.

On June 25, Federal Reserve governor Michelle Bowman said that financial institutions had been left in a “supervisory void” in terms of emerging technologies, including digital assets. Bowman added that policymakers have been relying on “general but non-binding statements,“ leaving substantial uncertainty and imposing new business requirements after significant investments have been made.

In that sense, a draft bill in the U.S. House of Representatives aims to prohibit the SEC from denying digital asset trading platforms registration as a regulated alternative trading system. Published on June 2, the proposed legislation would allow such firms to offer “digital commodities and payment stablecoins.“

Bitcoin margin, futures suggest bullishness

Now let’s look at Bitcoin derivatives metrics to better understand how professional traders are positioned amid improved regulatory perspectives and a sizable institutional inflow.

Margin markets provide insight into how professional traders are positioned because they allow investors to borrow cryptocurrency to leverage their positions.

OKX, for instance, provides a margin-lending indicator based on the stablecoin/BTC ratio. Traders can increase their exposure by borrowing stablecoins to buy Bitcoin. On the other hand, Bitcoin borrowers can only bet on the decline of a cryptocurrency’s price.

*OKX stablecoin/BTC margin-lending ratio. Source: OKX*

The above chart shows that OKX traders’ margin-lending ratio bottomed at 17 on June 20 but has improved over the past four days. The movement indicates a prevalence of margin longs as the present 24x ratio favors bullish stablecoin lending.

Still, investors should analyze the Bitcoin futures long-to-short metric, which excludes externalities that might have solely impacted the margin markets.

*Exchanges’ top traders Bitcoin long-to-short ratio. Source: CoinGlass*

There are occasional methodological discrepancies between exchanges, so readers should monitor changes instead of absolute figures.

Top traders at Huobi vastly increased their longs between June 22 and June 24 as Bitcoin price broke above the $30,000 resistance.

On the other hand, OXK’s top traders initially increased their shorts on June 22 and June 23, but subsequently reverted their positions by adding bullish bets.

Lastly, the top traders at Binance started adding longs on June 21 and have kept increasing bullish positions until June 23.

Bitcoin’s $30,000 support showing strength

Overall, Bitcoin bulls have added leverage-long positions using margin and futures markets backed by the positive momentum from multiple spot Bitcoin ETF requests, heavy institutional inflow and a more rational approach from U.S. lawmakers.

The SEC’s regulation-by-enforcement approach is not backed by some U.S. Federal Reserve governors and has faced some serious backlash in the U.S. House of Representatives. For example, Representative Warren Davidson has introduced the SEC Stabilization Act, citing “ongoing abuse of power” and demanding the removal of Gary Gensler as chair of the SEC.

Given the favorable scenario toward cryptocurrencies, Bitcoin bulls should now have the upper hand to sustain the $30,000 BTC price support level in the coming weeks.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Total crypto market cap closes in on $1T right as Bitcoin price moves toward $20K

January 13, 2023 Coin Telegraph

Total crypto market cap closes in on T right as Bitcoin price moves toward K

Aptos

Crypto traders chase after neutral-to-bullish options as Bitcoin price targets $20,000 and the total crypto market cap surges above $900 billion.

The total cryptocurrency market capitalization reached its highest level in over two months on Jan. 13 after breaking above the $900 billion mark on Jan. 12.

While the 15.5% year-to-date gain sounds promising, the level is still 50% below the $1.88 trillion crypto market cap seen before the Terra-Luna ecosystem collapsed in April 2022.

*Crypto markets total capitalization, USD. Source: TradingView*

“Hopeful skepticism” is probably the best description of most investors' sentiment at the moment, especially after the recent struggles of recapturing a $1 trillion market capitalization in early November. That rally to $1 trillion was followed by a 27.6% correction in three days and it invalidated any bullish momentum that traders might have expected.

Bitcoin (BTC) has gained 15.7% year-to-date, but a different scenario has emerged for altcoins, with a handful of them gaining 50% or more in the same period. Some investors attribute the rally to the U.S. Consumer Price Index (CPI) data released on Jan. 12, which confirmed the thesis that inflation was continuing to drop.

While the macroeconomic conditions might have improved, the situation for cryptocurrency companies seems gloomy. New York-based Metropolitan Commercial Bank (MCB) announced on Jan. 9 that it would close its crypto-assets vertical, citing changes in the regulatory landscape and recent setbacks in the industry. Crypto-related clients accounted for 6% of the bank's total deposits.

On Jan. 12, the U.S. Securities and Exchange Commission (SEC) charged cryptocurrency lending firm Genesis Global Capital and crypto exchange Gemini with offering unregistered securities through Gemini's "Earn" program.

A final blow came on Jan. 13 after Crypto.com announced a new wave of staff layoffs on Jan. 13, reducing the global workforce by 20%. Other crypto exchanges that recently announced job cuts in the last month include Kraken, Coinbase and Huobi.

Despite the dreadful newsflow, the macroeconomic tailwinds favoring risk assets ensured that only UNUS SED (LEO) closed the first 13 days of 2023 in the red.

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

Lido DAO (LDO) gained 108% as investors expect the upcoming Ethereum Shanghai upgrade that enables staked Ether withdrawals to boost the demand for liquid staking protocols.

Aptos (APT) rallied 98% after some decentralized applications started to pick up volume, including Liquidswap DEX, Ditto Finance staking and yield and NFT marketplace Topaz Market.

Optimism (OP) gained 70% after the layer-2 network picked up activity and, combined with its competitor Arbiturm, surpassed Ethereum's main chain transactions.

Leverage demand is balanced between bulls and bears

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.

*Perpetual futures accumulated 7-day funding rate on Jan. 13. Source: Coinglass*

The 7-day funding rate was near zero for Bitcoin and altcoins, meaning the data points to a balanced demand between leverage longs (buyers) and shorts (sellers).

If bears are paying 0.3% per week to maintain their leveraged bets on Solana (SOL) and BNB, that adds up to a mere 1.2% per month — which is not relevant for most traders.

Traders' demand for neutral-to-bullish options has spiked

Traders can gauge the market's overall sentiment by measuring whether more activity is going through call (buy) options or put (sell) options. Generally speaking, call options are used for bullish strategies, whereas put options are for bearish ones.

A 0.70 put-to-call ratio indicates that put options open interest lag the more bullish calls by 30%, which is bullish. In contrast, a 1.40 indicator favors put options by 40%, which can be deemed bearish.

*BTC options volume put-to-call ratio. Source: laevitas.ch*

Between Jan. 4 and Jan. 6, the protective put options dominated the space as the indicator soared above 1. The movement eventually faded and the opposite situation emerged as the demand for neutral-to-bullish call options has been in excess since Jan. 7.

The lack of leverage shorts and demand for protective puts points toward a bull trend

Considering the 15.7% gain since the start of 2023, derivatives metrics reflect zero signs of demand from leverage shorts or protective put options. While bulls can celebrate that the $900 billion total market capitalization resistance faced little resistance, derivatives metrics show bears are still patiently waiting for an entry point for their shorts.

Considering the market's bearish newsflow, bulls' main hope remains solely in the framework of a favorable macroeconomic environment, which largely depends on how retail sales data reports next week.

China is also expected to release its economic figures on Jan. 16 and the U.S. will do the same on Jan. 18. Another potential impact on price could be the United Kingdom's CPI print which is set to be announced on Jan. 18.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Bitcoin price rallies to $19K, but analyst says a $17.3K retest could happen next

January 12, 2023 Coin Telegraph

Bitcoin price rallies to K, but analyst says a .3K retest could happen next

Coin Telegraph

Bitcoin price hit a year-to-date high near $19,000 as pro traders used leverage to propel the pump, but derivatives data hints at reasons for BTC price to retest $17,300.

Bitcoin (BTC) price has gained 15% in the past 13 days, and during this timeframe, traders’ bearish bets in BTC futures were liquidated in excess of $530 million compared to bulls.

After rallying to $19,000 on Jan. 12, Bitcoin reached its highest price since the FTX exchange collapse on Nov. 8. The move was largely fueled by the United States Consumer Price Index (CPI) expectation for December, which matched consensus at 6.5% year-over-year — highlighting that the inflationary pressure likely peaked at 9% in June.

Furthermore, on Jan. 11, FTX attorney Andy Dietderich said $5 billion in cash and liquid cryptocurrencies had been recovered — fueling hopes of partial return of customer funds in the future. Speaking to a U.S. bankruptcy judge in Delaware on Jan. 11, Dietderich stated that the company plans to sell $4.6 billion of non-strategic investments.

Let’s look at derivatives metrics to understand whether professional traders are excited about Bitcoin’s rally to $19,000.

Margin use increased as Bitcoin price rallied to $18,300 and above

Margin markets provide insight into how professional traders are positioned, and margin is beneficial to some investors because it allows them to borrow cryptocurrency to leverage their positions.

For instance, one can increase exposure by borrowing stablecoins to buy Bitcoin. On the other hand, Bitcoin borrowers can only short the cryptocurrency as they bet on its price declining. Unlike futures contracts, the balance between margin longs and shorts isn’t always matched.

The above chart shows that OKX traders’ margin lending ratio firmly increased on Jan. 11, signaling that professional traders added leverage longs as Bitcoin rallied toward $18,300.

More importantly, the subsequent 2% correction on Jan. 12 that led Bitcoin to a $17,920 low marked the complete margin reversal, meaning whales and market makers reduced their bullish positions using margin markets.

Presently at 21, the metric favors stablecoin borrowing by a wide margin, indicating that bears are not confident about opening Bitcoin margin shorts.

Futures traders ignored the Bitcoin price pump

The long-to-short metric excludes externalities that might have solely impacted the margin markets. In addition, it gathers data from exchange clients’ positions on the spot, perpetual and quarterly futures contracts, thus offering better information on how professional traders are positioned.

There are occasional methodological discrepancies between different exchanges, so readers should monitor changes instead of absolute figures.

Even though Bitcoin broke above the $18,000 resistance, professional traders have kept their leverage long positions unchanged, according to the long-to-short indicator.

For instance, the ratio for Binance traders stood firm at 1.08 from Jan. 9 until Jan. 12. Meanwhile, top traders at Huobi reduced their leverage longs as the indicator moved from 1.09 to the present 0.91. Lastly, at crypto exchange OKX, the long-to-short slightly increased favoring longs, moving from 0.95 on Jan. 9 to the current 0.97.

Traders using futures contracts were not confident enough to add leveraged bullish positions despite the price increase.

Bitcoin price could retest $17,300

While the margin data shows that sizable leverage was used to push Bitcoin above $18,000, it suggests that the situation was only temporary. Most likely, those professional traders deposited more margin and consequently reduced their leverage after the event. In essence, the metric looks very healthy because it indicates that margin markets are not overbought.

As for the top trader’s long-to-short, the absence of demand for leverage longs using futures contracts is somewhat concerning, but at the same time, it leaves room for additional purchasing power.

From a derivatives standpoint, even if Bitcoin retests $17,300, the bulls should not be concerned because the derivatives indicators show little demand from short sellers and no excessive leverage from buyers.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Bitcoin margin long-to-short ratio at Bitfinex reach the highest level ever

September 13, 2022 Coin Telegraph

bitfinex

A key Bitcoin price metric hit a new all-time high, but is this a bullish or bearish development?

Sept. 12 will leave a mark that will probably stick for quite a while. Traders at the Bitfinex exchange vastly reduced their leveraged bearish Bitcoin (BTC) bets and the absence of demand for shorts could have been caused by the expectation of cool inflation data.

Bears may have lacked confidence, but August's U.S. Consumer Price Index (CPI) came in higher than market expectations and they appear to be on the right side. The inflation index, which tracks a broad basket of goods and services, increased 8.3% over the previous year. More importantly, the energy prices component fell 5% in the same period but it was more than offset by increases in food and shelter costs.

Soon after the worse-than-expected macroeconomic data was released, U.S. equity indices took a downturn, with the tech-heavy Nasdaq Composite Index futures sliding 3.6% in 30 minutes. Cryptocurrencies accompanied the worsening mood, and Bitcoin price dropped 5.7% in the same period, erasing gains from the previous 3 days.

Pinpointing the market downturn to a single inflationary metric would be naive. A Bank of America survey with global fund managers had 62% of respondents saying that a recession is likely, which is the highest estimate since May 2020. The research paper collected data on the week of Sept. 8 and was led by strategist Michael Hartnett.

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

Margin traders flew away from bearish positions

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

That is why some analysts monitor the total lending amounts of Bitcoin and stablecoins to understand whether investors are leaning bullish or bearish. Interestingly, Bitfinex margin traders entered their highest leverage long/short ratio on Sept. 12.

*Bitfinex margin Bitcoin longs/shorts ratio. 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.

As the above chart indicates, on Sept. 12, the number of BTC/USD long margin contracts outpaced shorts by 86 times, at 104,000 BTC. For reference, the last time this indicator flipped above 75, and favored longs, was on Nov. 9, 2021. Unfortunately, for bulls, the result benefited bears as Bitcoin nosedived 18% over the next 10 days.

Derivatives traders were overly excited in November 2021

To understand how bullish or bearish professional traders are positioned, one should analyze the futures basis rate. That indicator is also known as the futures premium, and it measures the difference between futures contracts and the current spot market at regular exchanges.

*Bitcoin 3-month futures basis rate, Nov. 2021. Source: Laevitas.ch*

The 3-month futures typically trade with a 5% to 10% annualized premium, which is deemed an opportunity cost for arbitrage trading. Notice how Bitcoin investors were paying excessive premiums for longs (buys) during the rally in November 2021, the complete opposite of the current situation.

On Sept. 12, the Bitcoin futures contracts were trading at a 1.2% premium versus regular spot markets. Such a sub-2% level has been the norm since Aug. 15, leaving no doubts regarding traders' lack of leverage buying activity.

Possible causes of the margin lending ratio spike

Something must have caused short-margin traders at Bitfinex to reduce their positions, especially considering that the longs (bulls) remained flat across the 7 days leading to Sept. 12. The first probable cause is liquidations, meaning the sellers had insufficient margin as Bitcoin gained 19% between Sept. 6 and 12.

Other catalysts might have led to an unusual imbalance between longs and shorts. For instance, investors could have shifted the collateral from Bitcoin margin trades to Ethereum, looking for some leverage as the Merge approaches.

Lastly, bears could have decided to momentarily close their margin positions due to the volatility surrounding the U.S. inflation data. Regardless of the rationale behind the move, there is no reason to believe that the market suddenly became extremely optimistic as the futures markets' premium paints a very different scenario from November 2021.

Bears still have a glass-half-full reading as Bitfinex margin traders have room to add leverage short (sell) positions. Meanwhile, bulls can celebrate the apparent lack of interest in betting on prices below $20,000 from those whales.

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.

Large Bitcoin liquidations mean one man’s pain is another man’s pleasure — Time to buy the dip?

June 15, 2022 Coin Telegraph

3AC

Pro traders were forced to cut their losses after margin and futures markets became over-leveraged, creating a potential entry point for bullish buyers.

Bitcoin (BTC) has been unable to restore the $24,000 support since Celsius, a popular staking and lending platform, paused withdrawals from its platform on June 13. A growing number of users believe Celsius mismanaged its funds following the collapse of the Anchor Protocol on the Terra Luna ecosystem and rumors of its insolvency continue to circulate.

An even larger issue emerged on June 14 after crypto venture capital firm Three Arrows Capital (3AC) reportedly lost $31.4 million through trading on Bitfinex. Furthermore, 3AC was a known investor in Terra, which experienced a 100% crash in late May.

Unconfirmed reports that 3AC faced liquidations totaling hundreds of millions from multiple positions agitated the market in the early hours of June 15, causing Bitcoin to trade at $20,060, its lowest level since Dec. 15, 2020.

Let’s take a look at current derivatives metrics to understand whether today’s bearish trend reflects top traders' sentiment.

Margin markets deleveraged after a brief spike in longs

Margin trading allows investors to borrow cryptocurrency and leverage their trading position to potentially increase returns. For example, one can buy cryptocurrencies by borrowing Tether (USDT) to enlarge exposure.

On the other hand, Bitcoin borrowers can short the cryptocurrency if they bet on its price decline, and unlike futures contracts, the balance between margin longs and shorts isn‘t always matched. This is why analysts monitor the lending markets to determine whether investors are leaning bullish or bearish.

Interestingly, margin traders boosted their leverage long (bull) position on June 14 to the highest level in two months.

*Bitfinex margin Bitcoin/USD longs/shorts ratio. 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.

As the above chart indicates, even on June 14 the number of BTC/USD long margin contracts outpaced shorts by 49 times, at 107,500 BTC. For reference, the last time this indicator stood below 10, favoring longs, was on March 14. The result benefited the counter-traders at that time, as Bitcoin rallied 28% over the following two weeks.

Bitcoin futures data shows pro traders were liquidated

The top traders' long-to-short net ratio excludes externalities that might have impacted the margin instruments. By analyzing these whale positions on the spot, perpetual and futures contracts, one can better understand whether professional traders are bullish or bearish.

It's important to note the methodological discrepancies between different exchanges, so the absolute figures have less importance. For example, while Huobi traders have kept their long-to-short ratio relatively unchanged between June 13 and June 15, professional traders at Binance and OKX reduced their longs.

This movement could represent liquidations, meaning the margin deposit was insufficient to cover their longs. In these cases, the exchange's automatic deleveraging mechanism takes place by selling the Bitcoin position to reduce the exposure. Either way, the long-to-short ratio is affected and signals a less bullish net position.

Liquidations could represent a buying opportunity

Data from derivatives markets, including margin and futures, show that professional traders were definitely not expecting such a deep and continuous price correction.

Even though there has been a high correlation to the stock market and the S&P 500 index posted a 21.6% year-to-date loss, professional crypto traders were not expecting Bitcoin to drop another 37% in June.

While leverage allows one to maximize gains, it can also force cascading liquidations such as the recent events seen this week. The automated trading systems of exchanges and DeFi platforms sell investors’ positions at whatever price is available when the collateral is insufficient to cover the risk and this put heavy pressure on spot markets.

These liquidations sometimes create a perfect entry point for those savvy and brave enough to counter-trade excessive corrections due to lack of liquidity and the absence of bids on the trading platforms. Whether or not this is the final bottom is something that will be impossible to determine until a few months after this volatility has passed.

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.

Ethereum price holds above $3K but network data suggests bulls may get trapped

February 9, 2022 Coin Telegraph

Ethereum price holds above K but network data suggests bulls may get trapped

Coin Telegraph

ETH price just broke from a long-term descending channel, but on-chain data still points to a few bearish catalysts.

When analyzing Ether's (ETH) price chart, one could conclude that the 3-month long bearish trend has been broken for a few reasons. The current $3,100 price range represents a 43% recovery in 15 days and, more importantly, the descending channel resistance was ruptured on Feb. 7.

Should Ether bulls start celebrating and calling for $4,000 and higher? That largely depends on how retail traders are positioned, along with the Ethereum network's on-chain metrics. For instance, is the $30-plus transaction fee impacting the use of decentralized applications (dApps), or are there any other factors that will prohibit Ether's price growth?

*Ether (ETH) price at FTX, in USD. Source: TradingView*

Since the 55.6% correction from the $4,870 all-time high to the cycle bottom at $2,160 on Jan. 24, Bitcoin (BTC) has failed to break the $45,500 resistance and traders concluded that a 12% correction was the most likely scenario.

On a brighter note, on Feb. 7, Big Four auditor KPMG's Canadian wing announced the addition of Bitcoin and Ether to its corporate treasury. The decision reflects KPMG Canada's belief that cryptocurrencies are a "maturing asset class," according to Benjie Thomas, a managing partner for the firm.

Derivatives data tells a different story

To understand how confident traders are about Ether's price recovery, one should analyze the perpetual contracts futures data. This instrument is the retail traders' preferred market because its price tends to track the regular spot markets.

In any futures contract trade, longs (buyers) and shorts (sellers) are matched at all times, but their use of leverage varies. Consequently, exchanges will charge a funding rate to whichever side demands more leverage, and this fee is paid to the opposing side.

*Ether perpetual futures 8-hour funding rate. Source: Coinglass*

This indicator will tell us whether retail traders are getting excited, which would cause it to move above 0.05%, equivalent to 1% per week. Notice how the past couple of months showed a slightly negative funding rate, reflecting the bearish sentiment. Currently, there is no sign that retail traders are confident enough to reopen leveraged long positions.

One should analyze the Ethereum network's on-chain data to understand if the lack of confidence is specific to leverage trading. For example, even though there is no set relation between Ether's price and network use, low transaction volume and a decline in active users could be a concern if decoupled from a price hike.

On-chain metrics raise concern

Measuring the monetary value of the ETH transacted on the network provides a reliable indicator of effective use. Of course, this metric could be masqueraded by increasing adoption in layer-2 solutions but it remains a starting point.

*Sum of native token units transferred per day. Source: CoinMetrics*

The current $6.2 billion daily transaction average is a 55% drop from December's peak and not really far from the 1-year low at $5.6 billion. Thus, it is safe to conclude that Ether token use is not showing signs of growth, at least on the primary layer.

Analysts should also check decentralized applications usage metrics. One must remember that the Total Value Locked (TVL) is heavily concentrated on lending platforms and decentralized exchanges (DEX). Consequently, gauging the number of active addresses provides a broader view.

*Ethereum network 30-day dApps activity. Source: DappRadar*

Apart from the non-fungible token (NFT) marketplace Opensea, Ethereum dApps saw a monthly 28% decrease in the number of active addresses. In a nutshell, that is disappointing usage data because the smart contract network was specifically designed to host decentralized applications.

Unless there's an uptick in Ether transactions and dApps usage metrics, investors will interpret any Ether price move above $3,000 as a potential bull trap. As for retail traders' neutral funding rate, it might as well be a bullish sign that the investor class typically enters long leverage positions after a strong rally.

Bitfinex shorts crumble, bears capitulate after Bitcoin holds above $30K

June 28, 2021 Coin Telegraph

Bitcoin

$726 million in Bitfinex shorts were quickly closed after Bitcoin price bounced at $30,500, leading traders to speculate whether bears have given up.

On June 25, the amount of Bitcoin (BTC) margin shorts at Bitfinex increased by 22,000, equivalent to $726 million. At the time, Cointelegraph reported that there was a significant increase in Bitfinex's spot volume market share starting at 9 am UTC, matching the demand in the short margin.

Data confirms that one (or more) whales actively shorted the market, betting on a price decrease. The average price of the trade was around $33,000, so every $500 difference would result in an $11 million profit or loss when closing the short position.

In the cryptocurrency world, traders tend to imagine that for some entity or group to build such a sizable position, there must be some 'inside' knowledge to protect them. However, as previously shown by Cointelegraph, the Bitfinex margin shorts from early June were underwater by $65 million when Bitcoin reached $40,400 on June 16.

*Bitcoin price at Coinbase, USD (left) vs. Bitfinex BTC Margin Shorts (right). Source: TradingView*

The important distinction between margin trading and futures (perpetual or quarterly) is that margin traders might use their own Bitcoin to close the trade. Thus, instead of buying it at the market, one needs only to inform the exchange that his spot holdings should be used to cover the short position.

The same feature is not available at futures markets because the contracts are synthetic. Depositing 10 Bitcoin at the exchange does not "free" a short seller from having to actually buy back the $360,000 worth of contracts.

Therefore, the short position could have been closed even if Bitfinex's spot volume doesn't completely account for the $900 million traded during that 8-hour period on June 25.

*Bitcoin spot exchanges aggregate volume. Source: Coinalyze*

Once again, the margin short close took place as the spot volume on Bitfinex increased on June 27. Therefore, it is reasonable to assume that the entities closing the margin trade did not previously buy Bitcoin to cover it.

The average price as the 22,000 Bitcoin margin shorts was closed in the 20 hours starting on June 26 afternoon was $32,500. This data indicates a potential $11 million gross profit for the trade. However, it is worth noticing that on June 26, Bitcoin peaked at $32,700, causing those margin shorts to face a momentary $15.4 million loss.

These traders could have closed their position as Bitcoin tested the $31,500 support, but the price showed resilience, and this might have erased most of the trade's gains. Regardless of what caused the short trades to be closed, it displays weakness from bears or a considerable discomfort in holding bear positions below $35,000.

Bad call? Bitfinex bears closed a block of Bitcoin shorts before the drop below $32K

June 22, 2021 Coin Telegraph

Bad call? Bitfinex bears closed a block of Bitcoin shorts before the drop below K

Bitcoin Price

Bitcoin short positions at Bitfinex soared as BTC price dropped below $40,000, so why did the majority of them close before the largest part of the correction?

Bitcoin price is still in a rut, trading near $33,000 and trapped in a downtrend that just seems to get worse with the passing of each day. As the price slumps, analysts have consulted with several technical and on-chain metrics to explain the price collapse, but none of these have picked up on the exact reason.

One area of interest has been the sharp rise in short positions at Bitfinex in the past week. Traders are placing exaggerated importance on these Bitcoin (BTC) margin shorts as if they are predictors of the current market crash. Still, as Cointelegraph previously reported, analysts forget that Bitcoin margin longs are usually much larger.

As #Bitcoin is Bleeding slowly towards the range low (30-32K) we can see that Bitfinex Mega shorts are getting closed gradually
Still big shorts are open, but half of them are already closed
Keeping an eye on this cuz Finex whale was a key player in 19th of May crash$BTC pic.twitter.com/c4qeb6Nxe3
— Feras_Crypto (@FeraSY1) June 20, 2021

On June 18, longs outnumbered Bitfinex shorts by at least 22,800 BTC, but 87% of the short positions were closed before June 22. Currently, margin longs are 43,850 BTC higher than the amount shorted.

While those shorts are usually savvy traders, it is unlikely that they knew in advance that Chinese banks would prevent their clients from engaging in activities involving crypto trading or mining.

More importantly, these bearish positions were built while MicroStrategy was buying $500 million in Bitcoin after a successful senior secured note private offer. To make things worse, Michael Saylor's business intelligence firm announced the intention to raise another $1 billion by selling stocks to buy Bitcoin.

Let's take a look at how these courageous shorts fared.

*Bitfinex margin shorts (blue) vs. Bitcoin price in USD (orange). Source: TradingView*

On June 6, shorts increased from 1,380 to 6,700 at an average price of $36,150. Three days later, another 12,180 shorts were added when Bitcoin was trading at $37,050. Lastly, between June 14 and 15, shorts increased 6,000 to a 25,000 peak while Bitcoin averaged $40,100.

By looking at the Bitcoin prices when those short position increases took place, it is reasonable to assume that the 23,500 contract increase (green circles) had an average price of $37,625.

Traders closed positions before BTC crashed bel$32,000

These short positions were steadily closed over the past three days when Bitcoin was already trading below $37,000. However, 17,000 short contracts had already been closed by the time the price plunged below $33,500. Therefore, it is implausible that the average price was below $34,500.

No one would complain about gaining 8%, shorting the market to generate a $73 million profit. However, it is essential to note that on June 16, when Bitcoin reached $40,400, these shorts were underwater by $65 million.

This analysis shows how even highly professional traders can go deep underwater. There's no way to know if this trade would have been profitable had the crackdown on China not aggravated Bitcoin price or if MicroStrategy managed to raise the $1 billion before the price drop.

If anyone still believes in market manipulation, at least there's comfort in knowing that pro traders can face drastic losses as well. However, unlike us mortals, whales have deep pockets and patience to withhold even the most rigorous thunderstorms.

Bears batter Bitcoin market sentiment as Bitfinex margin shorts surge 378%

June 7, 2021 Coin Telegraph

Bitcoin

The latest rally in BTC shorts is similar to what appeared ahead of the Elon Musk-led May 19 market crash.

Bitcoin (BTC) bulls should brace for a potential onslaught from bears as the number of margined short positions on Bitfinex jumps by a little over 378%.

Known to most by the ticker BTCUSD Shorts, the dataset records the number of bearish positions in the Bitcoin market. In simple terms, traders borrow funds from Bitfinex — their broker — to trade bet on bearish outcomes for the instrument BTC/USD. Meanwhile, the value of opened short positions is measured in BTC.

The number of short margined positions on Bitfinex reached an intraday high of 6,468.2202 BTC this Monday, up more than 378% from its previous session’s low at 1,351.72 BTC.

The spike prompted some analysts to alarm about a potential price crash in the Bitcoin spot market primarily because a similar wild BTCUSD Shorts uptrend at the beginning of last month had led the BTC/USD exchange rate down by almost $13,000 on May 19.

For instance, independent market researcher Fomocap tweeted a chart that showed a visible correlation between Bitcoin spot rates and its margined short positions. The analyst highlighted two instances to note that two metrics moved inversely with some lag.

His first example showed that on May 25, BTCUSD Shorts dropped lower, which was later led to a price rally in Bitcoin spot markets.

*Bitcoin crashed by 30% following a jump in BTCUSD Shorts positions on Bitfinex. Source: TradingView*

The second example showed Bitcoin spot prices crashing after a spike in BTCUSD Shorts.

EBlockChain, a TradingView contributor, said earlier on Monday that BTCUSD Shorts exceeding 200% and above is a “strong indication” of an imminent dump in Bitcoin spot markets. The analyst added:

“It could be triggered in a [matter] of few hours [to] three days max.”

Long-margined positions, meanwhile

The boldly bearish statements for Bitcoin also came as its margin-longed positions rose steadily.

BTCUSD Longs, another Bitfinex dataset that records the number of bullish margin positions, surged to as high as 44,538.6579 BTC on Monday. So, it appears, Bitcoin’s long exposure remained higher than short exposure in totality, illustrating that, to traders, the direction of the least risk was to the upside.

*Bitcoin long exposure on Bitfinex high despite recent spikes in bearish positions. Source: TradingView*

But a sudden drop in Bitcoin spot prices could also lead leveraged long holders to dump their BTCUSD positions, which, in turn, incites further selling. Such an event is called “long squeeze.” May 19’s price crash, for example, had liquidated about $7.5 billion of long-leveraged positions across the cryptocurrency derivatives market.

Jacob Canfield, a crypto trader, provided an optimistic outlook for Bitcoin following the May crash. Last week, the analyst stated that Bitcoin has already dropped by more than 40% following its May long squeeze — and now there is a lesser probability of facing another significant bearish move.

After a long squeeze and liquidity is taken to the downside.

Liquidity is usually engineered to the upside and shorts get trapped thinking more downside is coming.

We already got 40% drop.

Now it’s bears turn to get rekt again.
— Jacob Canfield (@JacobCanfield) June 2, 2021

Meanwhile, the cost to fund long positions in the Bitcoin derivatives market remained mostly below zero following the May 19 crash. Negative funding rates cause bearish traders to pay fees every eight hours. The situation encourages market makers and arbitrage desks to buy inverse swaps — or perpetual contracts — as they simultaneously unload their futures monthly contracts.

*BTC funding rates history. Source: Bybt.com*

Analysts typically interpret negative funding rates as a buy indicator because they create incentives for buyers and squeeze short-sellers. Meanwhile, the funding rates become neutral as soon as shorts close their positions.

Technicals disappoint

Bitcoin’s ongoing consolidation move has many traders point out the possible formation of a bearish pennant structure.

Not a big fan of this structure. $BTC pic.twitter.com/yO8bG66Zzr
— Blackbeard (@crypto_blkbeard) June 7, 2021

In retrospect, bearish pennants are downside continuation indicators — i.e., their setup typically involves the asset breaking out of the range and continuing in the direction of its previous trend. For example, Bitcoin dropped from around $65,000 to $30,000 before forming the pennant. Therefore, its likelihood of continuing lower appears higher based on technical structures alone.

Meanwhile, one bullish backstop for Bitcoin remains fears of higher inflation. This week, the United States Bureau of Labor Statistics will release May’s Consumer Price Index (CPI) report. The data will set the future tone for the Federal Reserve’s expansionary monetary policies, including near-zero lending rates and infinite bond-buying programs.

Economists forecast that the CPI will rise to 4.7% for May compared to 4.2% in April.

On-chain metrics bullish

More evidence dropped in about investors’ intention to hold Bitcoin than to trade/liquidate it for other assets. For example, on-chain analytics firm Glassnode reported a decline in net exchange flows involving Bitcoin.

*Bitcoin Exchange Net Flow hits 19-month low. Source: Glassnode*

Meanwhile, its rival CryptoQuant highlighted a significant drop in volume across the Bitcoin blockchain, hinting at a similar holding outlook via its “BTC: Active Address Count” metric.

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.

shorts

Why did BTC price break above $30,000?

Bitcoin margin, futures suggest bullishness

Bitcoin’s $30,000 support showing strength

Leverage demand is balanced between bulls and bears

Traders' demand for neutral-to-bullish options has spiked

The lack of leverage shorts and demand for protective puts points toward a bull trend

Margin use increased as Bitcoin price rallied to $18,300 and above

Futures traders ignored the Bitcoin price pump

Bitcoin price could retest $17,300

Margin traders flew away from bearish positions

Derivatives traders were overly excited in November 2021

Possible causes of the margin lending ratio spike

Margin markets deleveraged after a brief spike in longs

Bitcoin futures data shows pro traders were liquidated

Liquidations could represent a buying opportunity

Margin traders are extremely bullish

Sometimes even whales get it wrong

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

Derivatives data tells a different story

On-chain metrics raise concern

Traders closed positions before BTC crashed bel$32,000

Long-margined positions, meanwhile

Technicals disappoint

On-chain metrics bullish

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