Crypto Twitter says traders are short Bitcoin, but data shows otherwise
A popular meme on Facebook and Twitter is that traders are short Bitcoin and that it’s about to crash, but the data tells a different story.
Cryptocurrency and/or Bitcoin news is usually the most contentious and controversial topic, as it involves a lot of speculation, a heavy amount of emotions and an overall lack of “big picture” understanding. Twitter is often seen as a place for crypto traders to show off with outlandish tweets, but the truth is, Bitcoin is actually being shorted, and the evidence is in the data.
There has been much talk recently about Bitcoin being under-valued. In a recent piece for CNBC , Tom Lee, head of research at Fundstrat, claimed that Bitcoin was at its lowest point since 2015 and the only way it could go higher is if a major event like the end of a bull market brings in a wave of new money. Tyler Winklevoss, the twins of cryptocurrency fame , recently chimed in on the subject, telling CNBC that Bitcoin was at its lowest in the past six months.. Read more about bitcoin price and let us know what you think.
With margin trading, investors can borrow stapleoins or cryptocurrencies to solidify their position and increase expected returns. For example, if you borrow Tether (USDT), you buy bitcoin, increasing your long position in bitcoin (BTC). Investors can also borrow BTC for margin trading with short positions and bet on a price drop. That’s why some analysts are monitoring the overall volume of Bitcoin and Tether loans to see if investors are looking up or down.
Are analysts getting bearish by Bitfinex’s margin data alone?
This week, several prominent analysts noted a sharp increase in bitcoin short positions on the Bitfinex exchange, which opened on the 7th. The month of June reached 6,621 BTC. According to Cointelegraph, independent researcher Fomocap found a visible correlation between short margin positions and the price collapse of the 19th century. May. However, if you look at the overall picture, including long spreads, perpetual contract funding rates and protective puts, there is no indication that any known players are preparing for an unexpected downside move. A single instance where short selling on margin in bitcoin led to negative price changes should not be considered a leading indicator. Additionally, consider long margin positions in bitcoin, an opposite and generally greater strength. Bitfinex margin ratio of long and short bitcoin/dollar positions. Source: TradingView As you can see in the chart above, even on the 17th day of the week, the market exceeded the previous year’s level. In May, the number of long BTC/USD margin contracts exceeded the number of short contracts by 3.6 times and amounted to 39,000 BTC. The last time this indicator fell below the 2.0 level, favoring long positions, was on the 26th. November 2020. The result was not good for short sellers, as bitcoin rose 64% over the next thirty days. USDT/BTC lending ratio on OKEx. Source: OKEx When traders borrow Tether and Stablecoins, they are likely taking a long position in cryptocurrencies. On the other hand, borrowing BTC is mainly used for short positions. Theoretically, the market is bullish when the USDT/BTC credit ratio rises. The ratio on the OKEx exchange reached a new high on the 20th. There was a low of 3.5 in May, which was favorable for long positions, but it quickly returned to the 5.5 level. Therefore, there is no evidence of a significant shift towards shorts in the margin markets.
Perpetual futures funding rate remains unchanged
Perpetual futures are traded at prices very close to conventional cash market prices, making life much easier for smaller traders who no longer have to charge a futures premium. This magic can only be achieved through a funding rate charged for long positions (bids) while requiring greater leverage. However, in the opposite situation, if the short positions (sellers) have excessive leverage, the coverage ratio becomes negative and they pay the commission. Perpetual Bitcoin Futures 8-Hour Funding Rate. Source: Bybt As noted above, refinancing rates have been on the rise since the 19th century. The month of May remained largely unchanged. If demand for short positions were to increase sharply, the indicator would reflect this movement.
A call option offers the buyer protection against rising prices, while a put option has the opposite effect. This means that traders who focus on neutral bearish strategies generally use put options. Calls, on the other hand, are more often used for ascending positions. Global Bitcoin Put and Call Options Report. Source: Kryptorank.io Notice how bullish-neutral calls outperform protective puts by almost 90%. If professional traders and whales anticipated a market crash, this ratio would have a positive value. Investors should not make trading decisions based on one indicator because other markets and exchanges may not confirm it. Right now, there is absolutely no evidence that heavyweights are betting on bitcoin short positions. The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph. Every investment and every stage of trading involves risk. You should do your own research before making a decision.
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