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

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The value 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 worth to hit a two-month low. Earlier than the drop, many merchants anticipated a breakout in volatility that may push the worth upward, however that was clearly not the case. With the substantial liquidations, it’s essential to deal with whether or not skilled merchants gained from the worth crash.

There’s a standard perception amongst cryptocurrency merchants that whales and market makers have an edge in predicting vital worth shifts and that this permits them to realize the higher hand over retail merchants. This notion holds some fact, as superior quantitative buying and selling software program and strategically positioned servers come into play. Nevertheless, this doesn’t make skilled merchants proof against substantial monetary losses when the market will get shaky.

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

Margin longs at Bitfinex and OKX had been comparatively excessive

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

Bitfinex margin merchants are identified for swiftly establishing place contracts of 10,000 BTC or higher, 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 implies that skilled merchants had been solely caught off guard by the abrupt BTC worth crash.

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

In contrast to 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. Supply: OKX

The chart above reveals the OKX BTC margin lending ratio, which approached 35 instances in favor of lengthy positions on Aug. 16. Extra importantly, this degree aligned with the previous seven-day common. This means that even when exterior components skewed the metric beforehand, it may be deduced that whales and market makers maintained their place on margin markets earlier than the Bitcoin worth collapse on Aug. 16 and Aug. 17. This info helps the argument that skilled merchants had been unprepared for any type of destructive worth motion.

Futures long-to-short information proves merchants had been unprepared

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

Occasional methodological disparities amongst completely different exchanges exist, prompting viewers to trace adjustments relatively than fixate on absolute values.

Exchanges’ high merchants’ Bitcoin long-to-short ratio. Supply: CoinGlass

Previous to the discharge of the Federal Reserve’s Federal Open Market Committee minutes on Aug. 16, outstanding BTC merchants 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 merchants reached 1.45 moments earlier than the BTC worth correction commenced.

Associated: Why did Bitcoin drop? Analysts level to five potential causes

No matter 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 dearth of readiness by way of decreasing publicity previous to Aug. 16, be it in futures or margin markets. Consequently, an affordable assumption will be made that skilled merchants had been taken without warning and didn’t revenue from the worth crash.