Key Bitcoin Price Metric Shows Professional Traders Nervous About $ 19K BTC


This week, the price of Bitcoin (BTC) hit a new 3-year high at $ 18,965, leading investors to believe that a new all-time high above $ 20,000 is to be expected.

While this is an exciting time, the data shows some professional investors are feeling anxious about the price at these levels and the lack of FOMO retail calls for a sharp pullback.

Data shows that Bitcoin has not seen a drop of more than 5% since September 4 and that over the past 77 days the digital asset has gained 84%. The last similar price action was seen on November 25, 2019.

Bitcoin price (USD) on Bitstamp. Source: TradingView

At the time, BTC made a 47% move from $ 6,900 to $ 10,150 in mid-February 2020, an 86-day streak. Nevertheless, one should not jump to the conclusion that a substantial correction necessarily follows every move without a daily 5% drop.

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Evidence of such disparate expectations can be extracted from the basis of futures contracts. Typically, the indicator should show an annualized premium of 3% to 10%.

3 Month BTC Futures Premium, January 2020. Source: Skew

Note how traders were prepared to pay an additional 20% annualized to carry leveraged positions in February. This is rather unusual and a sign of extreme optimism.

This time around, the core indicator was hovering almost 10%. Therefore, it is safe to infer that the chances of cascading sell order closeouts are much lower this time around.

3 month BTC futures contract premium. Source: Skew

Lack of optimism is a sign of reduced conviction

Traders have been taken aback by this unusual trend, and the data confirms that there is a complete lack of conviction. Even though the BTC futures premium is currently in a bullish zone, this validates its purchase without discrimination.

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To effectively assess whether professionals have carried long positions throughout this rally, investors should monitor the long / short ratio of top traders on major crypto exchanges.

Long / short ratio of top Huobi BTC traders. Source: Huobi

At Huobi, we can see that the top traders entered a net short position as Bitcoin surpassed $ 16,000 on November 16. On November 19, a few bearish bets emerged as BTC failed to break the resistance of $ 18,000. Once again, they quickly closed their losses and are currently stable. Therefore, it can be assumed that professional traders have tried to guess a local high without much conviction.

Interestingly, Binance data shows the top traders using a different strategy. Despite this, it still reflects a lack of conviction, as can be inferred below.

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Long-short ratio of top Binance BTC traders. Source: Binance

Top Binance traders held a net long of 10% as Bitcoin rallied above $ 16,000, but then rushed to buy after going above $ 17,500.

While maintaining a bullish position, they reduced it significantly as BTC struggled to break $ 18,000 on November 18.

It should be noted that exchanges collect data from top traders differently, as there are several ways to measure client net exposure. Therefore, any comparison between different providers should be made on percentage changes rather than absolute numbers.

Ultimately, the data indicates that there is some indecision or at least a lack of strong conviction among the top traders.

When the market is sending mixed signals, there is nothing wrong with staying tight and not being in position. At least, that’s what savvy traders seem to be doing.

The views and opinions expressed herein are solely those of author and do not necessarily reflect the views of TBEN. Every investment and trading move involves risk. You need to do your own research when making a decision.