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In the past 24 hours, the price of Bitcoin (BTC) has fallen 14% and has tested the $ 32,000 support for the fifth time this year. Traders probably became even more worried when the price fell to $ 31,050, but at the time of writing, the 4-hour chart suggests the selling may slow down.
Currently, the short-term charts indicate that Bitcoin is still flirting with bearish territory, but a number of derivative indicators and the flow of top traders reflect neutral to bullish levels.
The last three times the price of Bitcoin has fallen below $ 32,000, a large rally of up to 30% has followed. The data shows that the top OKEx traders bought strongly on the downside and the term premium has remained in an optimistic range.
Even if traders buy this current decline, the sharp drop to $ 4,200 has inflicted severe damage on some investors. The move to $ 31,270 was followed by $ 460 million in liquidations on derivatives exchanges. Interestingly, this happened just as open interest on BTC futures hit a record high of $ 13.1 billion.
Today’s price action may sound worrisome, but it is pale compared to the 24% drop on Jan. 10 that wiped out $ 1.5 billion in long contracts.
Veteran traders are more used to Bitcoin’s 120% annualized volatility, so a 12% price swing isn’t particularly scary. In fact, the best traders and arbitrage remained relatively calm during the fall.
To understand whether or not Bitcoin is flashing bearish signals, traders can analyze the long / short ratio of top traders when trading crypto, futures premium, and options bias.
Long OKEx are 2.5 times larger than shorts
The data provided by the stock market highlights the net long-short positioning of traders. By analyzing the position of each client on the spot, perpetual contracts and futures contracts, one can get a clearer view of the trend of professional traders up or down.
That said, there are sometimes discrepancies in methodologies between different exchanges, so viewers should watch for changes rather than hard numbers.
Top OKEx traders have added long positions since January 19, pushing the indicator from 0.96 (slightly net short) to a ratio of 2.49 which favors buyers. This is the highest level in 30 days and indicates an unusually extreme imbalance.
On the other hand, Huobi’s top traders have averaged a long / short ratio of 0.91 over the past 30 days, favoring net shorts of 9%. On January 20, they added net short positions at a ratio of 0.86 but bought them back as BTC plunged into the early hours of January 21. Thus, they returned to their monthly average of 0.91 long-short.
Finally, the top Binance traders have an average position of 21% which has favored buyers over the past 30 days. These traders appear to be liquidated as their net long positions have been reduced to 1.02 from 1.18 since the end of January 20. According to data from Coinalyze, 40% of the total long BTC liquidations in the past 24 hours took place at Binance.
The futures premium has soared
Professional traders tend to dominate longer term futures contracts with fixed expiration dates. By measuring the spread of spending between futures and the regular spot market, a trader can assess the bullish level in the market.
3 month futures contracts should generally trade at an annualized premium of 6% to 20% (base) to regular spot trades. Anytime this indicator fades or turns negative, it is an alarming red flag. This situation is known as a downgrade and indicates that the market is turning bearish.
On the other hand, a sustainable base above 20% signals excessive leverage by buyers, creating the potential for massive sell-offs and possible market crashes.
The chart above shows that the indicator has ranged from 3.5% to 5.5% since December 13, resulting in a moderately bullish annualized base of 19%. Meanwhile, the recent high of 6.5% equates to an annualized premium of 29%, indicating excessive leverage from buyers.
While this is not the exact reason for today’s correction, market makers and referees know exactly how to play this situation. Pushing the price lower would certainly trigger a large amount of sell-offs and it’s also worth noting that open interest in futures had just hit an all-time high.
Currently, the premium of March BTC contracts has stabilized at almost 2.5%, which equates to a healthy 14% annualized basis.
20% crashes are the norm rather than the exception
It’s important to consider that Bitcoin has a 60-day volatility of 4.2%. These important corrections are therefore to be expected.
Bitcoin faced a 20% crash and tested levels below $ 28,000 on January 4, followed by an intraday drop of 27% on January 11. followed less than four days later.
The views and opinions expressed herein are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You need to do your own research when making a decision.
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