After correcting 15%, the Bitcoin price fell to USD 30,000, but derivatives indicators suggest professional traders are buying the dip.
In the last 24 hours, the Bitcoin (BTC) price fell 14% and tested the USD 32,000 support for the fifth time so far in 2021. Traders probably became even more concerned when the price fell to USD 31,050, but at the time of writing, the 4-hour chart suggests that the sell-off may be slowing.
Currently, short-term charts indicate that Bitcoin Trader reviews is still flirting with bearish territory, but a number of derivative indicators and major trader flow reflect neutral to bullish levels.
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The last three times the Bitcoin price fell below USD 32,000, we saw a prolonged rally of up to 30%. Data shows that top OKEx traders have been buying the drop heavily and the futures premium has remained in a bullish range.
Although traders are buying the current drop, the sharp correction to USD 4,200 inflicted serious damage on some investors. The move down to USD 31,270 was followed by USD 460 million in settlements on derivatives exchanges. Interestingly, this occurred just as open interest in BTC futures reached an all-time high of USD 13.1 billion.
Open interest in BTC futures on derivatives exchanges. Source: Bybt.com
Today’s price action may seem worrisome, but it pales in comparison to the 24% drop on January 10 that swept USD 1.5 billion in long position contracts.
Veteran traders are more accustomed to Bitcoin’s 120% annualized volatility, so a 12% price swing is not particularly scary. In fact, top traders and arbitrage teams remained relatively calm during the downturn.
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To understand whether Bitcoin is showing bearish signals or not, traders can analyze the ratio of long and short positions of major traders on cryptocurrency exchanges, futures premium and options bias.
Long positions on OKEx outnumber short positions.
Data provided by an exchange highlights the net positioning between long and short positions of traders. By analyzing each client’s position in the spot market, perpetual and futures contracts, a trader can gain a clearer perspective on whether professional traders are biased to the upside or the downside.
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That said, there are occasional discrepancies in methodologies between exchanges, so onlookers should monitor changes rather than absolute numbers.
Ratio of long and short BTC positions of major traders.
OKEx’s top traders have been adding long positions since Jan. 19, boosting the indicator from 0.96 (slightly a net short positioning) to a ratio of 2.49 that favors long positions. This is the highest level in 30 days and indicates an unusually extreme imbalance.
On the other hand, top Huobi traders averaged a ratio of long to short positions of 0.91 over the past 30 days, which favored short positions by 9%. On Jan. 20, they added short positions to a ratio of 0.86, but bought them back when BTC plunged during the early hours of Jan. 21. As a result, they are back to their monthly average of 0.91 long and short positions.
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Finally, Binance’s top traders averaged a 21% positioning favoring longs over the past 30 days. These traders appear to be getting liquidated as their positions declined to 1.02 from 1.18 since the end of Jan. 20. According to Coinalyze data, 40% of the total liquidations of long BTC positions over the past 24 hours occurred on Binance.
Futures premium soared
Professional traders tend to dominate longer-term futures contracts with fixed expiration dates. By assessing the expense gap between futures and the regular spot market, a trader can determine the level of bullishness in the market.
Three-month futures generally should trade at an annualized (basis) premium of 6% to