On October 7, the Cointelegraph reported that major cryptocurrency traders have maintained a bearish position since mid-September, when the bitcoin buy-to-sell ratio (BTC) reached its lowest level in 10 weeks. Everything changed within hours, when BTC broke through the $ 11,000 resistance.
When the volatility of bitcoin falls sharply, it usually indicates that traders are very happy. Of course, there will be periods of range trading, but short-term unpredictability is a hallmark of Bitcoin.
For professional traders, implicit volatility is known as the fear index because it measures the average premium paid in the options market. Any large unexpected price movement (negative and positive) will cause the index to rise sharply.
Notice how 3-month options recently hit a seventeen-month downturn. This should not be interpreted as a risk-free market as the three-month volatility of the S&P 500 is currently 28%. That’s not even half of today’s 60% bitcoin; Therefore, $ 500 daily candles should come as no surprise.
Over the past two weeks, the price of Bitcoin has traded in the range of $ 10,400 to $ 10,900, and Bitcoin’s open interest rate has increased by $ 300 million. This indicates that although it was a seemingly quiet period, traders increased prices.
Whatever the reason for the recent price movement, mainstream traders rushed to close their short positions. Meanwhile, the future premium remained modest, indicating the possibility of sustained gains.
Futures premium says that everything is fine
The seller of a futures contract usually asks for a price premium on regular spot exchanges. This situation arises in all derivatives markets and is not limited to cryptocurrency markets. In addition to the risk of foreign exchange liquidity, the seller postpones the settlement, and therefore the exchange rate is higher.
Healthy markets usually trade at a rate of 5% to 15% per year, known as the base rate. On the other hand, futures contracts are traded without the usual spot exchanges that indicate short-term bearish trends.
As you can see from the chart above, bitcoin futures last took place with a premium of 15% on August 18, and they have maintained a slightly positive interest rate since then. Friday’s rally was not enough to trigger inflation, which reinforced the previously explained short coverage speculation.
To better measure how traders position themselves when BTC seeks to create $ 11,000 as a new level of support, the relationship between long and short should be monitored.
Top traders buy 20% of the net profit
Although each futures market is balanced between buyers (buyers) and sellers (sellers), the positions of the main traders may differ from the broader customer base.
By collecting the net positions of only the best traders, one can determine how high or low their prices are.
On October 9, the buying / selling ratio for large traders on the stock exchange reached a low level of 0.75, according to OKEx. This figure corresponds to a short position of 25% and can be interpreted as bearish.
Over the next 24 hours, these traders not only closed their short positions, but also took back 25% of their long positions. This is a good sign of a solid improvement, as opposed to a short hedging scenario.
Binance’s data reflects a similar situation, with the long to short ratio between large traders growing from 9% to 23% of net purchases during the same period. It is worth noting that the exchange methods will vary. Therefore, you need to monitor changes, not absolute numbers.
The data above shows that the best traders were actually online sellers before the recent bitcoin price rise. The premium on futures remains at a positive and stable level, and paves the way for further use of borrowed funds by buyers.
Instead of betting on the typical Bart Simpson pattern, regular traders have changed their minds and are now leaning towards rallies, supporting a bullish $ 14,000 hypothesis.
In the future, traders may consider changing their positions in line with the data, instead of speculating on how price movements may lead to a trend reversal.
It does not matter if price fluctuations are related to Square’s recent acquisition of 4709 Bitcoin. If large traders are on the rise, this is usually a sign that the trend is strengthening in that direction.