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Crypto Twitter Says Traders Are Small Bitcoin, But Data Shows Otherwise


Margin trading allows investors to borrow stablecoins or cryptocurrencies to take advantage of their positions and improve expected returns. For example, borrowing Tether (USDT) will allow someone to buy bitcoin, thus increasing their bitcoin (B T c) in long position.

Investors can borrow BTC to trade short positions, thus betting on a fall in the price. This is why some analysts monitor the total lending amount of Bitcoin and Tether to see if investors are bullish or bearish.

Are Analysts Turning Bearish Based Only on Bitfinex’s Margin Data?

Some prominent analysts this week cited an increase in bitcoin short positions on Bitfinex, which peaked at 6,621 BTC on June 7. As Cointelegraph reported, independent researcher Fomocap found a view. Relationship between margined short positions and the May 19 price crash.

However, when the broader scenario is analyzed, including margin longs, perpetual contracts funding rate and protective put options, there is no evidence that the major players are preparing for a surprise downside move.

Not a single instance of spiking preceded a negative price swing for bitcoin margin shorts should be considered a leading indicator. In addition, one has to factor in bitcoin margin longs, an adversary and usually a major strength factor.

Bitfinex Margin Bitcoin/USD Long/Short Ratio. Source: TradingView

As indicated by the above chart, the number of long margin contracts for BTC/USD also increased by 3.6x to 39,000 BTC on May 17th. In fact, the last time this indicator fell below 2.0, in favor of the long, was on November 26, 2020. The result did not bode well for the bears, as bitcoin surged 64% over the next 30 days.

OKEx USDT/BTC Lending Ratio. Source: OKX

Whenever traders borrow Tether and stablecoins, they are likely to go long on the cryptocurrency. BTC lending, on the other hand, is mainly used for short positions.

Theoretically, whenever the USDT/BTC lending ratio rises, the market is bullish. OKEx’s ratio declined on May 20, in favor of Long, at 3.5, but quickly returned to the level of 5.5. Therefore, there is no evidence of a significant movement in favor of shorts on margin markets.

Perpetual futures funding rate still flat

Perpetual futures prices are traded very close to regular spot exchanges, making the lives of retail traders much easier as they no longer need to calculate futures premiums.

This magic can only be achieved with the funding rate charged from longs (buyers) when seeking higher leverage. However, when the position reverses, while the shorts (sellers) are more leveraged, the funding rate turns negative, and they become the ones paying the fee.

Bitcoin Perpetual Futures 8 hour funding rate. Source: Bybt

As shown above, the funding rate has been mostly flat since May 19. Had there been a huge jump in shorting demand, the indicator would have reflected the move.

Option put-to-call ratio remains bullish

A call (buy) option provides upside price protection to its buyer, and a put (sell) does the opposite. This means that traders aiming for neutral-to-bearish strategies will typically rely on put options. On the other hand, call options are generally used for bullish positions.

Total bitcoin put-to-call option ratio. Source: CryptoRank.io

Notice how neutral-to-bullish call options outperform protective puts by about 90%. If professional traders and whales had been anticipating a fall in the market, this ratio would have been positively affected.

Investors should not make trading decisions based on one indicator as the rest of the market and exchange cannot confirm it. For now, there is no indication that heavy players are betting on bitcoin short positions.

The views and opinions expressed here are solely those of Author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should do your own research when making a decision.