After the Bitcoin (BTC) price climbed from $ 31,000 to $ 34,800 in the past 48 hours, it turned the course back down. Although the $ 3,800 drop did not seem very critical, the futures contract worth $ 660 million turned into cash after the 12 percent price change.
The rise in the bitcoin price may not be understood much on the charts over time, but derivatives market indicators and investors’ movements say that it is not very realistic to expect a price below $ 30,000.
Bitcoin has tested the $ 30,800 support several times. However, the bulls bought below this level aggressively. Not surprisingly, both MicroStrategy and Marathon Patent Group have recently announced a large amount of purchases.
The data show that the biggest traders on the OKEx exchange are buying heavily at bottom.
It should not be forgotten that with the expiry of January 29 futures contracts of $ 4.9 billion, or in other words, 47 percent of the total $ 10.5 billion open position will be removed.
While this amount may initially be alarming, most of these contracts are usually transferred. These include $ 1.53 billion on OKEx, $ 875 million on CME and $ 840 million on Binance.
Currently long positions traders can buy longer contracts while closing their January futures positions.
While the final liquidations are large, professional traders are not easily shaken by a price fluctuation of just 12 percent. This hypothesis makes more sense given Bitcoin’s 120 percent annual volatility.
To understand how whales and arbitrage tables may have positioned themselves during this period, it is necessary to analyze the long / short position ratio and futures contract premiums of the largest traders.
The best traders bought from the bottom
There is no concrete way to effectively measure a trader’s net position, because they can hold the coins in the cold wallet or use them on multiple exchanges at the same time.
Also, when combining options with futures contracts, it is almost impossible to interpret a trader’s position by looking only at spot and futures risks.
Since January 22, the largest Binance traders have had a stable and balanced position, but in the early hours of January 25, they started adding long products. This trend continued on January 26, and the indicator now prefers 13 percent long products. Currently, the long to short ratio of the top Binance traders is below the 1.20 monthly average.
On the other hand, the largest traders in Huobi achieved an average long-short ratio of 0.85 in the past 30 days. On January 25, traders increased their net short positions to 25 percent as Bitcoin reached its local peak of $ 34,800. Therefore, by trading the current move correctly, they can buy back these contracts at lower prices and stop at their current monthly average of 0.85.
Finally, the largest OKEx traders have been buying aggressively since January 25, thus achieving the long-short ratio of 2.64 in 30 days. Considering that this process took place as BTC fell from $ 34,800 to $ 31,100, traders will face serious liquidation risks should the market decline.
Futures premium kept in the last three declines
When it comes to the futures premium, traders should expect an annual premium of 10 to 20 percent compared to spot exchanges. This indicator should be comparable to returns on stablecoin deposits.
If this indicator stays below this range, it will turn into an alarming signal. On the other hand, a sustainable premium of over 20 percent indicates excessive leverage of buyers. It creates the potential for huge liquidation and market collapse.
The chart above shows that the futures premium has fluctuated around 4.5 percent and turned into a 22 percent rise on an annual basis. After the January 20 BTC price drop, the indicator scaled to 3.3 percent and more recently to 2.2 percent as BTC tested the $ 31,000 support. The current 12 percent annual premium can be considered neutral.
More importantly, there are no signs of despair in the derivatives markets. The absence of a futures contract premium can easily be noticed in such a situation.
Although OKEx’s long-short position may seem excessive, the overall market structure is far from being too leveraged. So even if the BTC price repeats its test below $ 28,000, which took place on Jan.4, buyers have ammo to reverse the short-term bearish wave.
As Cointelegraph reported, all eyes are on the $ 4 billion options market, which currently points to the bull market and ended on Jan. 29.
The opinions and comments expressed here are only to the author belongs. It may not reflect Cointelegraph’s views. Every investment and trading move involves risk. When making your decision, you should do your own research.