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Data shows professional traders fell short when the price of bitcoin topped $ 12,000

October 22, 2020

As Bitcoin (BTC) breaks the $ 12,000 resistance, futures markets are flirting with an overly optimistic mood. The futures base and 25% bias of the options delta hit the same levels as they did on Oct 12, when BTC hit $ 11,700 for a short time but was unable to maintain momentum.

What sets the current situation apart from the view nine days ago are the positions of professional cryptocurrency traders. On October 12, these traders increased their long positions, but during the recent move to $ 12,000, the same professional traders opened short positions.

Despite this change of feeling Traders should not automatically conclude that today’s move will turn out to be a failure based solely on the long to short indicator. There is no way for beginners to know for sure how top traders position themselves outside of the exchange.

Data shows professional traders fell short when the price of bitcoin topped $ 12,000
Data shows professional traders fell short when the price of bitcoin topped $ 12,000

For this reason, Derivatives pricing is a more accurate way of assessing how bullish or bearish professional traders can be. This indicator focuses on actual market conditions while both fear and greed and the call-put relationship are retrospective.

The futures markets tend to trade at a slight premium over regular spot exchanges. This event is not only found in the cryptocurrency markets, it is a spin-off effect.

The premium (or base) of futures contracts in healthy markets should be between 5% and 10% on an annual basis. Numbers above this range indicate overly optimism as traders bet on much higher prices. In the opposite case, a negative futures premium indicates a downward trend.

Annualized premium for 3-month BTC futures contracts. Source: Skew

The graph above shows how the base indicator has flirted with overly optimistic values. similar to October 12th.

Traders shouldn’t confuse optimism with leverage. because even with open-ended contracts, a positive financing rate is required to confirm this thesis.

The perpetual futures funding rate is settled every 8 hours on most exchanges, and if the funding rate is positive, a fee is paid by longs (buyers) on shorts. This situation would be the defining characteristic of over-leveraged buyers, but it hasn’t been the case before.

Bitcoin Perpetual Contract Funding Rate. Source: Digital Assets Data

The data above shows how volatile the funding rate has been, even though we haven’t seen any sustained funding periods. The standard measurement of this indicator is 8 hours. Therefore, a rate of 0.05% equals 1% per week. The opposite is true for a negative funding rate when the shorts are the ones who pay it.

As for the bitcoin options market, A similar move was seen when the delta 25% bias indicator entered bullish territory with confidence. A negative bias indicates that call options cost more than similar put options, indicating a bullish sentiment. On the other hand, a positive trend indicates a downward trend.

25% of the 3 month bitcoin options delta. Source: Skew

See how close the bias indicator is to its lowest level in 6 months. This shows the optimism of the traders. This situation is the same as it was on October 12th when BTC gained 10% in 4 days. While nothing is stopping the bias indicator from staying at current levels for long periods of time, this is unlikely in the history of Bitcoin.

After reviewing the derivatives market indicators, we were able to conclude that professional traders are trending higher when opening long positions above USD 12,000. Apart from the fact that the data provided by exchanges on the average of the short-term long-term positioning of professional traders shows that this is not the case.

Average of long and short customers. Source: Binance Y. OKEx

There are often discrepancies between exchange methods, Therefore, readers should monitor changes, not absolute numbers. Based on the above data, it is safe to say that professional clients were neutral or added long prior to October 12th.

On the other hand, There have been significant moves on both exchanges over the past two days as professional traders on the sell side have been more active as BTC neared $ 12,000.

Regardless of the optimism that is reflected in the derivative indicators, These traders briefly indicate a lack of optimism.

These seemingly contradicting signals could mirror the recent 15% rally in two weeks’ time and prompt some traders to choose to take their profits. Although the futures markets continue to favor an upward trend, Professional traders don’t seem to see any reason to add long positions at current levels.

Although the purchase from professional dealers seems to have failed for the time being, You seem in no rush to get to the FOMO at the current level. Until these traders start building some Significantly long positions above $ 12,000, this support cannot be considered strong enough.

The views and opinions expressed here are solely those of darer and do not necessarily reflect the views of Cointelegraph. Every investment and business move is associated with risks. You must do your own research when making a decision.