Margin trading allows investors to borrow stablecoins or cryptocurrencies to take advantage of their position and improve expected returns. For example, borrowing Tether (USDT) allows a trader to buy Bitcoin, increasing their long position in Bitcoin (BTC).
Investors can also borrow BTC to trade margins on a short position and bet on falling prices. As a result, some analysts are monitoring the total loan amounts of Bitcoin and Tether to see if investors are sloping up or down.
Do analysts only rely on Bitfinex’s margin trading data?
This week, some prominent analysts cited an increase in Bitcoin short positions on Bitfinex, which peaked on June 7 at 6,621 BTC. As Cointelegraph told you, the independent researcher found Fomocap a visible correlation between short margin positions and the May 19th price crash.
However, when looking at a broader scenario that includes long margin positions, the funding rate for perpetual contracts, and hedging put options, there is no evidence that the bigger players are playing the game.
A single instance of a short margin position in the Bitcoin market before a negative price spike should not be viewed as a key indicator. Also note long margin positions in the Bitcoin market, an opposing and usually greater force.
As the graphic above shows, even on May 17th the number of BTC / USD contracts with long margins exceeded the shorts by 3.6 times at 39,000 BTC. In fact, the last time this indicator fell below 2.0 was on November 26, 2020, which favored long contracts. The result wasn’t good for shorts as Bitcoin rose 64% over the next thirty days.
When traders borrow tether and stablecoins, they are likely long in a cryptocurrency. On the other hand, BTC credit is mainly used for short positions.
In theory, as the USDT / BTC credit ratio increases, the market will always tilt higher. The indicator on OKEx bottomed at 3.5 on May 20, favoring long positions, but quickly bounced back to 5.5. Hence there is no evidence of any significant move in favor of shorts in the margin markets.
The funding rate for perpetual futures remains unchanged
Perpetual futures prices are very close to the regular spot exchanges, which makes life a lot easier for private traders as they don’t have to calculate the futures premium.
This magic can only be achieved through the funding fee that longs (buyers) are charged when they need more leverage. However, if the situation is reversed and it is the shorts (sellers) who are demanding more leverage, the funding rate becomes negative and it is they who pay the rate.
As shown above, the funding rate has been fairly constant since May 19th. Had the demand for short positions increased massively, the indicator would have reflected the movement.
The relationship between put and call options remains bullish
The call option offers its buyer protection against price increases, the put option the opposite. This means that traders looking for neutral or bearish strategies will often turn to put options. On the other hand, call options are more commonly used for bullish strategies.
See neutral to bullish calls outperform protective put options by nearly 90%. Had professional traders and whales expected a market downturn, this ratio would have been positively influenced.
Investors should not make decisions based on a single indicator as other markets and exchanges may not confirm this. At this time, there is absolutely no evidence that heavyweights are shorting Bitcoin.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you will need to do your own research when making a decision.