CME bitcoin derivatives traders had “weak hands” when BTC hit $ 55,000, the report shows

Bitcoin (BTC) derivatives traders on the Chicago Mercantile Exchange (CME) lost incredible profits when the spot price of BTC topped $ 55,000 this week.

According to data shared by Ecoinometrics, retail investors reduced their long exposure to the Bitcoin futures and options markets in late September. The number of open short positions also increased, suggesting that derivatives traders were expecting Bitcoin’s price to decline, as shown in the chart below.

CME Bitcoin Derivatives â ???? Retail merchants. Source: CFTC report – Dealer commitments – ???? , Ecoinometry

The data was taken on September 28th. when the price of BTC on Coinbase fell below $ 41,000which is a decrease of nearly 23% from its high so far this month near $ 52,950. The decline came after China’s decision to ban all types of cryptocurrency transactions.

CME bitcoin derivatives traders had “weak hands” when BTC hit $ 55,000, the report shows
CME bitcoin derivatives traders had “weak hands” when BTC hit $ 55,000, the report shows

“This drop is most likely due to a mix of traders who didn’t move their long positions to the October contract as some were immediately liquidated when BTC looked like it was going to drop below $ 40,000 last week.”said Nick, an analyst at Ecoinometrics.

“Regardless, the big picture is that futures traders are not convinced.”

“This is paper hands 101,” remarked the analyst.

Smart money

Institutional investors in CME’s bitcoin futures market also followed retail sentiment by reducing their long exposure to the market. On the other hand, their short positions increased.

CME Bitcoin Derivatives â ???? smart money. Source: CFTC report – Dealer commitments – ???? , Ecoinometry

With CME options traders convinced that the price of Bitcoin would go down, the number of put options – an implicitly bearish bet on the price of Bitcoin – turned out to be almost twice as large as the number of call options or bets on possible price gains for Bitcoin.

CME Bitcoin Options â ???? Put Options Open Interest vs. Buy Options. Source: Ecoinometry

The allocation of traders’ positions made $ 40,000 the most desirable execution price target.

On the flip side, some options traders are betting that Bitcoin’s spot price would hit $ 60,000 by the end of October. Additionally, crypto analyst Hedger noted that Bitcoin options expiring on Nov. 26 are showing bullish sentiment leaning towards the $ 80,000 target.

Buy / sell volume in the last 24 hours for the Bitcoin options contract dated November 26th. Source: Laevitas, Crypto Hedger

“At this current rate of growth, Bitcoin has formed very strong support at the $ 50,000 price point and short-term traders may also need to keep an eye on the important resistance level around $ 56,000.”said Konstantin Anissimov, CEO of CEX.IO, adding:

“A break below or above these levels could lead to another price disaster or a massive spike to $ 60,000 in the fourth quarter.”

The reduction in Bitcoin supply is at stake

On-chain data shared by Ecoinometrics also showed higher levels of Bitcoin withdrawals from all cryptocurrency exchanges.

In detail, the 30-day net exchange flow of Bitcoin has been increasing since July 2020, as can be seen in the color-coded graph below, with blue and red indicating the extreme outflow and inflow, respectively.

Bitcoin net flow on exchanges. Source: Coinmetrics

Ecoinometrics has observed that the amount of Bitcoin currently leaving the exchanges is higher than in previous four-year halving cycles.

Net flow of Bitcoin on the exchanges (second half vs. third). Source: Coinmetrics®

In the meantime, Traders see the reduction in Bitcoin supply on the exchanges with increased hodling activity as new catalysts for a liquidity crisis and further price increases.

“There were periods of net outcomes back then, but in terms of size they seem a lot less dramatic than what we have now.”Ecoinometry highlighted and added:

“This is another sign that we are on our way to a liquidity crisis that could drive the value of Bitcoin much higher than it is now.”

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every step of investing and trading involves risk and you should do your own research when making a decision.

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