Bitcoin derivatives data shows that professional traders increased their short positions in the last three weeks.
October is just beginning and the price action in the cryptomoney markets has been exciting and worrying. Bitcoin (BTC) has experienced a strong rejection of USD 10,900 and a quick low of USD 10,200 during the past week.
Abra’s CEO says that now more than ever he’s more optimistic about Profit Secret and if buyers use more leverage than sellers, the financing rate will be positive and buyers will pay. The opposite is true when sellers of future contracts demand more margin.
Circular saw price action has been the norm for the past three weeks and is quite scary for both up and down traders. Regardless of the reason behind these moves, the recent flow of bad news regarding the crypto space clearly scared off investors.
In the last two weeks, KuCoin was hacked for $150 million, BitMEX was accused of multiple legal violations, John McAfee was arrested and the UK’s main financial watchdog decided to ban exchanges of crypto derivatives. This was enough to break the current 30-day correlation with the S&P 500 and also indicates that market sentiment may have changed.
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There were hardly any weeks when the price action differed between the two markets. The few exceptions that exist were the first week of September and over the course of the last six days.
To better understand whether this divergence is caused by the growing interest in cryptomone or the lack of it, traders need to be aware of the volume traded.
BTC 7-day average volume
The volume has been decreasing in the main exchanges, this is difficult to paint as something positive. This is clear evidence of investor interest, at least at current levels.
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We should not automatically conclude that traders are bearish solely because of volume metrics. For this situation to occur, both buyers and sellers must be unwilling to trade at the current price range.
The funding rate shows that short traders feel safe
Excessive leverage from both sides will be reflected in the funding rate. This happens because every perpetual futures contract has margin usage fees built in.
The funding rates are generally changed every 8 hours to ensure that there is no imbalance in exchange risk and although the open interest of buyers and sellers coincide at all times, the leverage can vary.
Bitcoin perpetual swaps 8-hour funding rate
8-hour funding rate for Bitcoin perpetual exchanges.
After a brief rebound in early September, the funding rate has remained flat or slightly negative. A negative 8-hour rate of 0.05% is equivalent to 1% per week and, although it’s reasonably high, it’s not enough to make traders close their positions.
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This does not necessarily mean that investors are bearish, but it does indicate that sellers of futures contracts are using more leverage.
Professional traders are neutral in the short term
The data provided by an exchange highlights the net positioning of long and short traders. By studying the position of each client on spot, perpetual and futures contracts, a clearer picture can be obtained of whether professional traders are leaning upwards or downwards.
That said, there are occasional discrepancies in methodologies between different exchanges, so viewers should monitor changes rather than absolute numbers.
OKEx clients BTC long/short ratio
As the chart above shows, OKEx traders have been on a net short position since September 14th. This happened while BTC was trying to break the USD 10,500 resistance. Assuming that these traders opened short positions near that level, the maximum loss faced so far was 7%.
To evaluate whether this is an isolated or exchange-related move, we have to compare data from other exchanges.