Bitcoin (BTC) bears have been in control since Nov. 11, subduing the price of BTC below $17,000 on every 12-hour candle. On November 28, a drop to $16,000 dashed bulls’ hopes that gains of 7% between November 21-24 would be enough to mark a cycle low of $15,500.
The most likely culprit was an unexpected transfer of 127,000 BTC from a Binance cold wallet on November 28. The huge Bitcoin transaction immediately triggered fear, uncertainty, and doubt, but Binance CEO Changpeng Zhao later announced that it was part of an audit process.
Regulatory pressure has also been limiting BTC’s rise after reports on Nov. 25 showed that cryptocurrency lending firm Genesis Global Capital and other crypto firms were being investigated by securities regulators in the United States. Joseph Borg, director of the Alabama Securities and Exchange Commission, confirmed that his state and several other states are investigating Genesis’ alleged links to violations of securities laws.
On November 16, Genesis announced that it had temporarily suspended recalls, citing “unprecedented market turmoil”. Genesis has also hired restructuring advisers to explore all possible options, including but not limited to possible bankruptcy, as Cointelegraph reported on Nov. 23.
Let’s take a look at derivatives metrics to better understand how professional traders are positioning themselves in current market conditions.
Margin markets show leveraged long positions are at their three-month peak
Margin markets provide insight into how professional traders are positioned because they allow investors to borrow cryptocurrency to leverage their positions.
For example, exposure can be increased by borrowing stablecoins to buy Bitcoin. On the other hand, Bitcoin borrowers can only short the cryptocurrency as they bet on its price falling. Unlike futures contracts, the balance between long and short margin positions does not always match.
The chart above shows that OKX traders’ margin lending ratio increased from November 20 to November 27, indicating that professional traders increased their leverage during the 6% dip towards $15,500.. Currently at 34, the metric favors stablecoin lending by a wide margin – the highest in three months – indicating that traders have maintained their bullish positions.
Leveraged buyers ignored the recent drop to $15,500
Long to short metric excludes externalities that might have affected margin markets only. In addition, it collects data on the positions of the exchange’s clients in spot, perpetual and quarterly futures contracts, thus offering better information on the position of professional traders.
From time to time there are methodological discrepancies between different exchanges, so readers should look at the changes rather than the absolute numbers.
Despite Bitcoin failing to break above the $16,700 resistance, professional traders have maintained their leveraged long positions, according to the long-to-short indicator.
For example, Binance Traders’ Ratio improved a bit from 1.00 on Nov. 21, but ended the period at 1.05. In the meantime, Huobi showed a more substantial increase in its long-to-short indicator, going from 1.01 to 1.08 in the seven days to November 28.
On the OKX cryptocurrency exchange, the metric slightly decreased from 0.99 on Nov. 21 to 0.96 on Nov. 28. Consequently, on average, traders are confident enough to keep adding leverage to bullish positions.
Support at $16,200 showed strength, suggesting that traders are turning bullish.
These two derivatives metrics – margin and long-to-short of top traders – suggest that sellers of leverage by size did not support Bitcoin’s price correction to $16,000 on Nov. 28.
Bearish sentiment would have caused the margin lending ratio to go below 15, pushing the long-to-short ratio much lower. It is important to note that even professional traders can misread the market, but the current reading on the derivatives market favors strong support at $16,000.
Still, even if the price touches $15,500 again, bulls should not worry as derivatives indicators remained neutral to bullish on Nov. 21 and improved further during the week.
The views, thoughts and opinions expressed herein are those of 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 trade involves risk, and readers should do their own research when making a decision.
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the entire amount invested may be lost. The services or products offered are not directed or accessible to investors in Spain.