Bitcoin price drops to a two-month low — Did pro traders profit?


The price of Bitcoin fell by 11.5% from Aug. 16 to Aug. 18, leading to $900 million value of lengthy positions being liquidated and inflicting the price to hit a two-month low. Before the drop, many traders anticipated a breakout in volatility that might push the price upward, however that was clearly not the case. With the substantial liquidations, it’s necessary to tackle whether or not skilled traders gained from the price crash.

There’s a widespread perception amongst cryptocurrency traders that whales and market makers have an edge in predicting vital price shifts and that this enables them to acquire the higher hand over retail traders. This notion holds some fact, as superior quantitative buying and selling software program and strategically positioned servers come into play. However, this doesn’t make skilled traders immune to substantial monetary losses when the market will get shaky.

For larger-sized {and professional} traders, a majority of their positions could also be totally hedged. Comparing these positions with earlier buying and selling days permits for estimations on whether or not latest actions anticipated a widespread correction within the cryptocurrency market.

Margin longs at Bitfinex and OKX have been comparatively excessive

Margin buying and selling lets traders enlarge their positions by borrowing stablecoins and utilizing the funds to purchase extra cryptocurrency. Conversely, traders who borrow Bitcoin (BTC) make use of the cash as collateral for brief positions, indicating a guess on price decline.

Bitfinex margin traders are identified for swiftly establishing place contracts of 10,000 BTC or larger, underscoring the involvement of whales and substantial arbitrage desks.

As depicted within the chart beneath, the Bitfinex margin lengthy place on Aug. 15 stood at 94,240 BTC, nearing its highest level in 4 months. This means that skilled traders have been completely caught off guard by the abrupt BTC price crash.

Bitfinex margin BTC longs, measured in BTC. Source: TradingView

Unlike futures contracts, the equilibrium between margin longs and shorts isn’t inherently balanced. A excessive margin lending ratio signifies a bullish market, whereas a low ratio suggests a bearish sentiment.

OKX USDT/BTC margin lending ratio. Source: OKX

The chart above exhibits the OKX BTC margin lending ratio, which approached 35 occasions in favor of lengthy positions on Aug. 16. More importantly, this stage aligned with the previous seven-day common. This implies that even when exterior elements skewed the metric beforehand, it may be deduced that whales and market makers maintained their place on margin markets earlier than the Bitcoin price collapse on Aug. 16 and Aug. 17. This data helps the argument that skilled traders have been unprepared for any type of destructive price motion.

Futures long-to-short information proves traders have been unprepared

The web long-to-short ratio of the highest traders excludes exterior elements that will have completely influenced the margin markets. By consolidating positions throughout perpetual and quarterly futures contracts, a clearer perception might be gained into whether or not skilled traders are leaning towards a bullish or bearish stance.

Occasional methodological disparities amongst totally different exchanges exist, prompting viewers to observe adjustments quite than fixate on absolute values.

Exchanges’ high traders’ Bitcoin long-to-short ratio. Source: CoinGlass

Prior to the discharge of the Federal Reserve’s Federal Open Market Committee minutes on Aug. 16, distinguished BTC traders on Binance exhibited a long-to-short ratio of 1.37, aligning with the height ranges noticed within the earlier 4 days. The same sample emerged on OKX, the place the long-to-short indicator for Bitcoin’s main traders reached 1.45 moments earlier than the BTC price correction commenced.

Related: Why did Bitcoin drop? Analysts point to 5 potential reasons

Irrespective of whether or not these whales and market makers augmented or diminished their positions put up the initiation of the crash, information stemming from BTC futures additional substantiates the shortage of readiness by way of lowering publicity prior to Aug. 16, be it in futures or margin markets. Consequently, a affordable assumption might be made that skilled traders have been taken abruptly and didn’t revenue from the price crash.