For aspiring traders, fear can be a heavy burden. Resisting the urge to buy Bitcoin (BTC) after an almost 15% rally that saw the price break through $ 12,000 and $ 13,000 levels in less than 24 hours is almost impossible.
Professional traders are more experienced and know exactly how to deal with these terrible situations. As the data showed, they mostly added short trades until October 20, before the $ 12,000 crash.
Complete settlement of a BTC futures contract. Source: Coinalyze.net
Most investors do not understand that being a professional trader does not mean that all new trends are profitable. In contrast, survival when things go wrong is a true marker of success.
When BTC increased to $ 13,217, there was a liquidation of $ 350 million, and futures financing ratio shows that there was no excessive short leverage.
Perpetual contracts, also known as reverse swaps, have a built-in rate that is usually charged every eight hours. When these are short positions that require more leverage, the financing rate becomes negative. So these shorts will be the ones that pay royalties.
Constant financing rate for a Bitcoin contract. Source: data on digital assets.
The graph above shows that this situation has not happened in recent weeks, at least not to a large extent. Thus, despite sales before the price increase, large traders did not close short positions when using loans.
The data show that professional traders left their short positions on October 21 and are still far from making bulls. This measure is supported by large traders on cryptocurrency exchanges with long to short ratios and premium futures contracts.
Professional traders have closed card sales, but are not ready to buy
According to Huobi’s long to short relationship, there were no signs of violent purchases. The data indicate that ordinary traders are unsure whether the current rally will be maintained despite some activity to cover short positions.
Long / short position as a leading Huobi dealer. Source: Huobi
The buy-to-sell ratio was relatively neutral until October 21. Suddenly, top traders decided to go short when BTC broke through the $ 12,500 resistance. This morning, as BTC refused to lose positions, these traders began to close their short trades.
However, there is no sign of bullish prices so far, as the latest data from Huobi in favor of 10% came two weeks ago.
Buy / sell conditions OKEx. Source: OKEx
For senior traders at OKEx, the picture was the same, even though the sale was for $ 12K. This indicator is still in favor of short positions, a trend that emerged in mid-September and continues to this day.
To confirm if there is a change in feeling, you should monitor the futures premium. These deals are usually traded at a small premium in healthy markets for any asset class.
Emerging markets will lead sellers of futures to ask for a higher price to defer settlement, instead of selling in regular spot markets. If the current level of $ 13K manages to restore the bullish momentum, this should be reflected in this indicator.
Futures premium in January. Source: data on digital assets.
As shown by Cointelegraph and Digital Assets Data, the current premium of 1.8% is similar to the level observed three weeks ago, when BTC hovered around $ 11,500. These data are further evidence that large traders are unsure about buying bitcoins, despite a price increase of 13% since then.
Option markets face turbulent winds
Implicit volatility is the most important measure that can be learned from option prices. When traders realize that there is an increased risk of greater price volatility, the index will rise. The opposite occurs in periods where the price remains constant or small price fluctuations are expected.
3 month bitcoin options mean volatility. Source: Skew
Bitcoin’s implicit volatility has been on a downward trend over the past six weeks, but yesterday’s move appears to have surprised options traders. Not only did the index rise from 55% to 70%, but the trading volume in option contracts ($ 575 million) was three times higher than average.
The sudden increase in volatility and the partial retracement after the current 64% level indicate that some traders were in a bad position and were forced to suddenly close their positions.