The price of Bitcoin (BTC) has rallied 15% over the past 13 days, during which more than $530 million of traders’ short bets on BTC futures have been canceled against bulls.
After rising to $19,000 on January 12, Bitcoin hit its highest price since the FTX crash on November 8. The move was largely driven by the US Consumer Price Index (CPI) expectation for December, which was in line with the consensus of 6.5% y-o-y. -over the year – highlights that inflationary pressure peaked at 9% in June.
In addition, on January 11, FTX attorney Andy Dietderich said that $5 billion in cash and liquid cryptocurrencies had been recovered, raising hopes for a partial refund of client funds in the future. Speaking before a US bankruptcy judge in Delaware on January 11, Dietderich said the company plans to sell $4.6 billion worth of non-strategic investments.
Let’s take a look at derivatives metrics to see if professional traders are excited about Bitcoin’s rally to $19,000.
Margin usage has increased as the price of Bitcoin has climbed to $18,300 and above
Margin markets provide information on how professional traders take positions, and margin is useful for some investors because it allows them to borrow cryptocurrency to leverage their positions.
For example, one can increase the risk by taking stablecoins to buy Bitcoin. On the other hand, Bitcoin borrowers can only use the cryptocurrency for a short period of time because they are betting that the price of the cryptocurrency will fall. Unlike futures contracts, the balance between margin longs and shorts does not always match.
The chart above shows that OKX traders’ margin lending rate increased strongly on January 11, indicating that professional traders were adding leverage lengths as Bitcoin climbed towards $18,300.
More importantly, the subsequent 2% correction that sent Bitcoin down to $17,920 on January 12 marked a complete margin reversal, meaning whales and market makers used margin markets to reduce their bullish positions.
Currently at 21, the metric favors stablecoin borrowing with a wide margin, indicating bears are unsure about opening Bitcoin margin shorts.
Futures traders ignored the Bitcoin price pump
The long-short metric only excludes externalities that may affect margin markets. In addition, it collects data from stock market clients’ spot positions, standing and quarterly futures contracts, thus offering better insight into how professional traders position themselves.
There are occasional methodological discrepancies between the various exchanges, so readers should definitely follow the changes instead of the numbers.
While Bitcoin broke through the $18,000 resistance, professional traders kept their leveraged long positions unchanged on the long-short indicator.
For example, the ratio for Binance traders remained stable at 1.08 from January 9th to January 12th. Meanwhile, top traders at Huobi reduced their leverage lengths as the indicator rose from 1.09 to the current 0.91. Finally, the OKX crypto exchange gained a bit from the long-short, rising from 0.95 on January 9th to the current 0.97.
Traders using futures contracts were not confident enough to add leveraged bullish positions despite the price increase.
Related: 13% of BTC Supply Returns to Profits as Bitcoin Sees ‘Massive’ Rally
Bitcoin price may retest $17,300
While the margin data shows that significant leverage was used to push Bitcoin above $18,000, it suggests that the situation is only temporary. It is likely that these professional traders were investing more on margin and consequently reduced their leverage after the event. In fact, the metric looks very healthy as it indicates that margin markets are not overbought.
As for the best trader’s long-short price, the lack of demand for long-term loans using futures contracts is a bit of a concern, but at the same time, it leaves room for additional buying power.
From a derivatives perspective, even if Bitcoin retests $17,300, bulls should not be concerned, as derivatives show little demand from short sellers and no excessive leverage by buyers.
This article does not contain investment advice or recommendations. Every investment and trading action involves risk and readers should do their own research before making a decision.
The views, opinions and opinions expressed herein are solely those of the authors and do not reflect or represent the views and opinions of Cointelegraph.