Oddly enough, bitcoin is down 3.8% in seven days, compared to the S&P 500 falling 3.5% in the same period. So on the one hand, the bitcoin bulls take some comfort in knowing that correlation played a major role; Meanwhile, $206 million worth of Bitcoin futures contracts were liquidated on December 15th.
Some troubling economic data from the auto loan industry has made investors uncomfortable because the default rate from lower-income consumers now exceeds 2019 levels. Concerns arose after the average monthly payment for a new car reached $718, a 26% increase in three years.
Moreover, the central banks of the United States, England, the European Union and Switzerland raised interest rates by 50 basis points to multi-year highs – highlighting that borrowing costs are likely to continue rising for longer than the market had hoped.
Uncertainty in the cryptocurrency markets resurfaced after two of the most prominent auditors suddenly dropped their services, leaving the exchanges hanging. French auditing firm Mazars Group, which previously worked with exchanges including Binance, KuCoin and Crypto.com, has removed a section dedicated to crypto audits from its website.
Meanwhile, accounting firm Armanino has reportedly terminated its cryptocurrency auditing services. The auditor has worked with several cryptocurrency exchanges such as OKX, Gate.io and the troubled FTX exchange. Oddly enough, Armanino was the first accounting firm to establish ties in the cryptocurrency industry, back in 2014.
Let’s take a look at derivative metrics to better understand how professional traders fare in the current market conditions.
The stablecoin premium in Asia drops to a two-month low
The premium is a good measure of cryptocurrency retailer demand in China. It measures the difference between peer-to-peer trades based in China and the United States dollar.
Excessive buying tends to pressure the index above the fair value at 100%, and during bear markets it overwhelms the supply of the stablecoin market, causing a discount of 4% or higher.
USDC is peer-to-peer against USD/CNY. Source: OKX
Currently, the USD premium stands at 101.8%, up from 99% on December 12, indicating high demand for buying stablecoins from Asian investors. The data gained importance after the brutal 9.7% correction in five days since the $18,370 peak on December 14th.
However, this indicator should not necessarily be considered bullish because the stablecoin could have been acquired to protect against downside risks in cryptocurrencies – which means that investors are becoming more bearish.
Take advantage of buyers who have been slowly thrown in the towel
The long to short scale excludes external factors that may only affect the stablecoin market. It also collects data from clients’ positions traded in spot, perpetual and quarterly futures contracts, thus providing better information on how professional traders are positioned.
There are occasional methodological inconsistencies between different exchanges, so readers should keep an eye on changes rather than absolute numbers.
Major exchange traders is long to short ratio of Bitcoin. Source: Coinglass
With Bitcoin breaking below the $16,800 support, professional traders reduced leveraged long positions according to the index long to short.
For example, the Binance trader ratio decreased slightly from 1.11 on December 14 to the current level of 1.04. Meanwhile, Huobi showed a slight decrease in the buy-to-sell ratio, with the index moving from 1.01 to 0.05 in the same period.
Finally, on the OKX exchange, the scale fell from 1.00 on December 14 to the current ratio of 0.98. So, on average, traders have reduced their long leverage ratio over the past 5 days, which indicates a decrease in market confidence.
It is likely that the $16,000 will be retested
Moderate stablecoin premiums of 101.8% in Asia, paired with bearish information for long-to-short traders, tells the story of buyers gradually ceding pessimism.
Moreover, the liquidation of $206 million in long Bitcoin futures indicates that buyers continue to use excessive leverage, making the perfect storm for another part of the correction.
For now, the Bitcoin price is still very dependent on the traditional stock markets. However, weak macroeconomic data and uncertainty caused by cryptocurrency auditing firms indicate higher odds for a retest of $16,000 in Bitcoin.