Bitcoin price drops to a two month low — Did pro traders benefit?


The worth of Bitcoin (BTC) fell by 11.5% from Aug. 16 to Aug. 18, leading to $900 million price of lengthy positions being liquidated and inflicting the worth to hit a two-month low. Earlier than the drop, many merchants anticipated a breakout in volatility that might push the worth upward however this was clearly not the case. With the substantial liquidations, it is necessary to deal with whether or not skilled merchants gained from the worth crash.

There is a frequent perception amongst cryptocurrency merchants that whales and market makers have an edge in predicting important worth shifts and that this permits them to achieve the higher hand over retail merchants. This notion holds some fact, as superior quantitative buying and selling software program and strategically positioned servers come into play. Nevertheless, this does not make skilled merchants resistant to substantial monetary losses when the market will get shaky.

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For larger-sized {and professional} merchants, a majority of their positions could also be absolutely hedged. Evaluating these positions with earlier buying and selling days permits for estimations on whether or not latest actions anticipated a widespread correction within the cryptocurrency market.

Margin longs at Bitfinex and OKX had been comparatively excessive

Margin buying and selling lets traders enlarge their positions by borrowing stablecoins and utilizing the funds to accumulate extra cryptocurrency. Conversely, merchants who borrow Bitcoin make use of the cash as collateral for brief positions, indicating a guess on worth decline.

Bitfinex margin merchants are identified for swiftly establishing place contracts of 10,000 BTC or higher, underscoring the involvement of whales and substantial arbitrage desks.

As depicted within the chart under, the Bitfinex margin lengthy place on August 15 stood at 94,240 BTC, nearing its highest level in 4 months. This implies that skilled merchants had been solely caught off guard by the abrupt BTC worth crash.

Bitfinex margin BTC longs, measured in BTC. Supply: TradingView

In contrast to futures contracts, the equilibrium between margin longs and shorts is not inherently balanced. A excessive margin lending ratio signifies a bullish market, whereas a low ratio suggests a bearish sentiment.

OKX USDT/BTC margin lending ratio. Supply: OKX

The chart above exhibits the OKX BTC margin lending ratio, which approached 35 occasions in favor of lengthy positions on August 16. Extra importantly, this stage aligned with the previous seven-day common. This means that even when exterior components skewed the metric beforehand, it may be deduced that whales and market makers maintained their place on margin markets earlier than the Bitcoin worth collapse on Aug. 16 and Aug. 17. This info helps the argument that skilled merchants had been unprepared for any type of destructive worth motion.

Futures long-to-short information proves merchants had been unprepared

The web long-to-short ratio of the highest merchants excludes exterior components which will have completely influenced the margin markets. By consolidating positions throughout perpetual and quarterly futures contracts, a clearer perception might be gained into whether or not skilled merchants are leaning in the direction of a bullish or bearish stance.

Occasional methodological disparities amongst completely different exchanges exist, prompting viewers to trace modifications somewhat than fixate on absolute values.

Exchanges’ high merchants Bitcoin long-to-short ratio. Supply: Coinglass

Previous to the discharge of the Federal Reserve FOMC minutes on August 16, distinguished BTC merchants on Binance exhibited a long-to-short ratio of 1.37, aligning with the height ranges noticed within the earlier 4 days. The same sample emerged on OKX, the place the long-to-short indicator for Bitcoin’s main merchants reached 1.45 moments earlier than the BTC worth correction commenced.

Associated: Why did Bitcoin drop? Analysts point to 5 potential reasons

No matter whether or not these whales and market makers augmented or diminished their positions put up the initiation of the crash, information stemming from BTC futures additional substantiates the shortage of readiness by way of decreasing publicity previous to August 16, be it in futures or margin markets. Consequently, an inexpensive assumption might be made that skilled merchants had been taken unexpectedly and didn’t revenue from the worth crash.