In the past 48 hours, the price of Bitcoin (BTC) has fallen by $ 13,360 and more than $ 2.6 billion in futures have been liquidated. Including altcoins, the total liquidation amount was $ 5.9 billion.
After scoring a record open interest of $ 19.5 billion on February 21, the metric has stabilized at $ 16.5 billion. This means that half of the completed leverage positions have been reopened.
According to long to short data from top traders and various finance rate indicators, retail traders have been hit the hardest.
Top traders bought the dip
The Long-Short Indicator of Top Traders is calculated using consolidated client positions including spot, margin, perpetual and forward contracts. Unlike futures premium or option bias indicators, this metric collects a broader view of the effective net position of professional traders.
Despite the discrepancies between crypto exchange methodologies, analyzing changes over time provides valuable insight.
Top Huobi traders maintained a long / short ratio of 0.81 on February 20, favoring shorts by 19%. Adding net long positions over the next 48 hours, the indicator peaked at 0.95, indicating that long activity prevailed.
The top OKEx traders have been aggressive net buyers over the past three days. Starting from an indicator of 0.86 favoring shorts of 14%, they managed to bring it down to a net long position of 69%.
Finally, top Binance traders started at 1.36, favoring net buyers, but were either liquidated or opened net shorts until they hit the current level of 1.23. Regardless, these traders haven’t added any positions in the past three days.
Overall, the average long to short position of top traders fell from 1.01 (flat) on January 20 to 1.37 today, in favor of net buyers. Therefore, it is clear that Arbitration Bureaus and Whales have increased their longs throughout the liquidations.
Reduced funding rate shows retail investors reduced their long positions
If the best traders are net buyers, then retail must hold the other end, even if this has happened through long leveraged closeouts.
To maintain a balanced risk exposure, derivative exchanges charge perpetual (buyers) or shorts (sells) forward fees every eight hours. Known as the finance rate, this indicator will turn positive when long positions are the ones that require the most leverage.
In contrast, periods of fear and high sales activity lead to negative turnover in finance rates. This time around, the shorts would be the one to pay.
As of February 6, the average weekly finance rate has exceeded 2.3%. This happened as Bitcoin surpassed $ 38,000, indicating overly leveraged retail purchases. On the other hand, the best traders usually opt for fixed-calendar futures to avoid exorbitant fundraising fees during rallies.
That movement faded completely on February 23 as the price of Bitcoin fell below $ 50,000. After briefly flirting with a negative finance rate, it has now stabilized at nearly 0.5% per week. The metric indicates that retail traders have been liquidated, which has caused the indicator to return to neutral levels.
While $ 50,000 appears to be a significant psychological level, Bitcoin’s 67% gains since the start of the year will likely continue to attract investors. The modest 3% performance of the S&P 500 and a 0.6% yield on five-year US Treasuries offer no match for the upside potential that can be captured from cryptocurrencies.
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.