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Bullish contraction in sight? 3 reasons why the Bitcoin price can be roughly corrected

May 17, 2020

The price for Bitcoin (BTC) at BitMEX was slightly over $ 9,900, an increase of almost 9% in less than 48 hours from May 16. Despite the impressive recovery, CoinMarketCap’s main digital asset is exposed to the risk of a significant short-term bullish contraction.

According to Coinmarketcap, Bitcoin’s market cap is currently $ 179,479,194,100.

Three factors suggest that Bitcoin’s price can be corrected After the recent surge from $ 9,100 to $ 9,900, they are as follows: an overwhelmingly large number of long and short positions, an increase in funds and a possible formation of three lower highs.

Bitcoin long positions mostly outperform short positions

Bullish contraction in sight? 3 reasons why the Bitcoin price can be roughly corrected
Bullish contraction in sight? 3 reasons why the Bitcoin price can be roughly corrected

About Bitfinex, BitMEX and Binance Futures, 77.51% of traders hold long positions on average.

In total only on the three futures exchanges, There are $ 763 million in long positionswhile alone There are short positions of USD 221 million.

Total Bitcoin longs and shorts. Source: Blockchain Whispers

Sum of Bitcoin’s long and short positions. Source: Blockchain Whispers

If the price of Bitcoin rises without any significant resistance, A large number of long contracts can be seen as optimism. This suggests that the majority of the market believes that the price of Bitcoin will rise in the short term.

For example, as the price of Bitcoin rose from $ 8,500 to $ 10,085 in a period of four days in the first week of May The market was largely in long positions.

The difference between the beginning of May and the current price development is that Almost 80% of the traders in the entire Bitcoin futures market are in long positions with BTC While the cryptocurrency is testing the resistance range of $ 9,900 to $ 10,000 that it hasn’t been able to overcome in the past two weeks.

Bitcoin financing, long-short contractual relationship and open interest. Source: CryptoISO

Bitcoin financing, share in long and short contracts and open interest. Source: CryptoISO

The increase in the funding rate coincides with large long-term contracts

In the Bitcoin futures market, traders often trade in an open-ended contract with no expiration date. In contrast to conventional futures contracts Bitcoin traders don’t have to risk being pushed out of their position at some point.

In order to strike a certain balance, futures exchanges use a mechanism called funding. When more long contracts are open in the market, traders who take long positions in Bitcoin must pay compensation to traders who take short positions in BTC. This keeps the market in balance and prevents a sustained downward trend or a recovery.

At BitMEX, the financing rate of your perpetual Bitcoin futures contract is around 0.05%. If a trader has a long position of $ 100,000 open, he will have to pay $ 150 a day as compensation to keep the position open.

A high funding rate is a negative factor when the bitcoin price starts to fall. When the price of Bitcoin falls, traders no longer have the incentive to keep their positions open while compensating short-term contract holders.

Bitcoin is at a strong resistance level

The unusually high percentage of long contracts in the Bitcoin futures market and the high funding rate are considered potential catalysts for a strong withdrawal because the bitcoin price is at a strong resistance level.

Since early May, Bitcoin’s price has tested the $ 10,000 total resistance level three times.

Triple lower highs on the 4H Bitcoin price chart. Source: TradingView

Lowest triple maximum on the chart for 4 hours of Bitcoin. Source: TradingView

On May 8, Bitcoin’s price reached $ 10,085, but didn’t stay above $ 10,000 and eventually dropped to $ 8,100. On May 14, BTC rose to $ 9,970, which was heavily declined at $ 9,100. Today, for the third time, Bitcoin’s price reached $ 9,910, but could not overcome the upper resistance.

The lowest triple high, a pattern consisting of three consecutive lows. increases the likelihood that Bitcoin will experience a strong correction in the short term.

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