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Bitcoin price continues to drop, but how are pro BTC traders positioned?

Data shows top traders futures’ Bitcoin long-to-short at the lowest level in 30 days, but what does this mean for BTC’s short-term price action.

Bitcoin (BTC) has experienced a remarkable 15.7% price surge in the first six days of December. This surge has been heavily influenced by the anticipation of an imminent approval of a spot exchange-traded fund (ETF) in the United States. Senior Bloomberg ETF analysts have expressed a 90% probability for approval by the U.S. Securities and Exchange Commission, which is expected before Jan. 10.

However, Bitcoin’s recent price surge may not be as straightforward as it seems. Analysts have failed to consider the multiple rejections at $37,500 and $38,500 during the second half of November. These rejections have left professional traders, including market makers, questioning the market’s strength, particularly from the perspective of derivatives metrics.

Bitcoin’s 7.6% rally to $37,965 on Nov. 15 resulted in disappointment as the movement fully retracted the following day. Similarly, between Nov. 20 and Nov. 21, Bitcoin’s price declined by 5.3% after the $37,500 resistance proved more formidable than anticipated.

Ethereum price weakens near key support, but traders are afraid to open short positions

ETH price hovers at a key support level and while it is softening, data shows pro traders are reluctant to go short.

Ether (ETH) has been stuck between $1,170 to $1,350 from Nov. 10 to Nov. 15, which represents a relatively tight 15% range. During this time, investors are continuing to digest the negative impact of the Nov. 11 Chapter 11 bankruptcy filing of FTX exchange.

Meanwhile, Ether’s total market volume was 57% higher than the previous week, at $4.04 billion per day. This data is even more relevant considering the collapse of Alameda Research, the arbitrage and market-making firm controlled by FTX’s founder Sam Bankman-Fried.

On a monthly basis, Ether’s current $1,250 level presents a modest 4.4% decline, so traders can hardly blame FTX and Alameda Research for the 74% fall from the $4,811 all-time high reached in November 2021.

While contagion risks have caused investors to drain centralized exchanges wallets, the movement led to an uptick in decentralized exchanges (DEX) activity. Uniswap, 1inch Network, and SushiSwap saw a 22% increase in the number of active addresses since Nov. 8.

Let’s take a look at derivatives metrics to better understand how professional traders are positioned in the current market conditions.

Margin markets show no signs of distress

Margin trading allows investors to borrow cryptocurrency to leverage their trading position, potentially increasing their returns. For example, one can buy Ether by borrowing Tether (USDT), thus increasing their crypto exposure. On the other hand, borrowing Ether can only be used to short it or bet on a price decrease.

Unlike futures contracts, the balance between margin longs and shorts isn’t necessarily matched. When the margin lending ratio is high, it indicates that the market is bullish — the opposite, a low lending ratio, signals that the market is bearish.

*OKX USDT/ETH margin lending ratio. Source: OKX*

The chart above shows investors’ morale topped on Nov. 13 as the ratio reached 5.7, the highest in two months. However, from that point onward, OKX traders presented less demand for bets on the price uptrend as the indicator declined to the current 4.0 level.

Still, the current lending ratio leans bullish in absolute terms, favoring stablecoin borrowing by a wide margin. It is worth highlighting that the overall sentiment improved since Nov. 8 as traders increased demand for margin longs using stablecoins.

Long-to-short data shows reduced demand for leverage longs

The top traders’ long-to-short net ratio excludes externalities that might have solely impacted the margin markets. By aggregating the positions on the spot, perpetual and quarterly futures contracts, analysts can better understand whether professional traders are leaning bullish or bearish.

There are occasional methodological discrepancies between different exchanges, so viewers should monitor changes instead of absolute figures.

*Exchanges’ top traders Ether long-to-short ratio. Source: Coinglass*

The long-to-short ratio at Huobi stood at 0.98 between Nov. 8 and Nov. 15, indicating a balanced situation between leverage buyers and sellers. On the other hand, Binance traders initially faced a deep contraction in the demand for longs, but the movement was utterly subdued as buying activity dominated from Nov. 11 onward.

At the OKX exchange, the metric plunged from 1.30 on Nov. 8 to the present 0.81, favoring shorts. Therefore, according to the long-to-short indicator, the top traders significantly reduced their longs until Nov. 10, but then proceeded to increase long positions.

From a derivatives analysis point of view, neither futures nor margin markets display excess demand for shorts. Had the panic-based sentiment prevailed, one would expect worsening conditions on the Ether lending and long-to-short indicators.

Consequently, bulls are in control as traders are not comfortable taking bearish positions with ETH below $1,300.

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

2 key Ethereum price indicators point to traders opening long positions

Ether price is still at risk of falling below $1,000, but data points to traders opening fresh long positions.

Ether (ETH) price has been unable to close above $1,400 for the past 29 days and has been trading in a relatively tight $150 range. At the moment, the $1,250 support and the $1,400 resistance seem difficult to break, but two months ago, Ether was trading at $2,000. The current price range for Ether simply reflects how volatile cryptocurrencies can be.

From one side, investors are calm as Ether trades 50% above the $880 intraday low on June 18. However, the price is still down 65% year-to-date despite the most exciting upgrade in the network’s seven-year history.

More importantly, Ethereum’s biggest rival, BNB Chain, suffered a cross-chain security exploit on Oct. 6. The $568 million exploit caused BNB Smart Chain to temporarily suspend all transactions on the network, which holds $5.4 billion in smart contracts deposits.

Ether underperformed competing smart contract network coins such as Binance Chain’s BNB (BNB), Cardano’s ADA (ADA), and Solana’s (SOL) by 14% since September, even though its TVL in ETH terms increased by 9% during the period. This suggests that the Ethereum network’s issues, such as the $3 average transaction fees, weighed on the ETH price.

*Ether vs. MATIC, SOL, BNB: Source: TradingView*

Traders should look at Ether’s derivatives markets data to understand how whales and market makers are positioned.

Options traders remain moderately risk-averse

The 25% delta skew is a telling sign whenever professional traders overcharge for upside or downside protection. For example, if traders expected an Ether price crash, the options markets skew indicator would move above 12%. On the other hand, generalized excitement reflects a negative 12% skew.

*Ether 60-day options 25% delta skew: Source: Laevitas*

In layperson’s terms, the higher the index, the less inclined traders are to offer downside risk protection. The indicator has been signaling fear since Sept. 19, when it last held a value below 10%. That day marked the temporary bottom of a 28% weekly correction, as the $1,250 support strengthened after such a test.

Long-to-short data show traders adding longs

The top traders’ long-to-short net ratio excludes externalities that might have solely impacted the options markets. By aggregating the positions on the spot, perpetual and quarterly futures contracts, one can better understand whether professional traders are leaning bullish or bearish.

There are occasional methodological discrepancies between different exchanges, so viewers should monitor changes instead of absolute figures.

Binance displayed a modest increase in its long-to-short ratio between Oct. 13 and 17, as the indicator moved from 1.04 to 1.07 in those four days. Thus, those traders slightly increased their bullish bets.

Huobi data shows a stable pattern as the long-to-short indicator stayed near 0.98 the whole time. Lastly, at the OKX exchange, the metric plunged to 0.72 on Oct. 13, largely favoring shorts only to rebound to the current 1.00.

On average, according to the long-to-short indicator, the top traders from those three exchanges have been increasing long positions since the $1,200 support test on Oct. 13.

Skew and leverage are critical to sustaining the $1,250 support

There was no significant improvement in pro traders’ derivatives positions despite Ether gaining 12% since the Oct. 13 crash down to $1,185. Moreover, options traders fear that a move below $1,250 remains feasible, considering the skew indicator remains above the 10% threshold.

If these whales and market makers had firm convictions of a sharp price correction, that would have been reflected in the top traders’ long-to-short ratio.

Investors should closely monitor both metrics. The 25% delta skew should remain at 18%, and the long-to-short ratio above 0.80 to sustain the $1,250 support strength. These indicators are a telling sign of whether the bearish sentiment from top traders is gaining momentum.

What will happen to Bitcoin and Ethereum if traditional markets break?

Multiple indicators of economic health all point to a severe recession hitting the US and global economy soon. What could this mean for crypto investors?

Michael J. Burry, the financial wizard who was portrayed in the movie “The Big Short”, is known for predicting crises. For instance, his investment fund made billions from the 2008 housing crash, and Burry liquidated almost all his entire portfolio during the 2Q of 2022.

Given that no one seems to know whether traditional markets will bounce before entering a further recessive environment, it might be a good time to consider investing in cryptocurrencies. Below are some examples on how experienced investors sometimes miss incredible rallies.

In May 2017, Burry said people should expect a “global financial meltdown” and World War 3. Instead, the S&P 500 rallied 20% over the following 9 months. A couple of years later, the index peaked in December 2021, at a level that was more than 100% above Burry’s suggested short entry price.

In December 2020, Burry said that Tesla’s stock price was “ridiculous” as part of his justification for opening his short position. A 47% rally happened in the 35 days following that remark and Tesla shares peaked 10 months later after a 105% total gain from Tesla’s supposedly “ridiculous” price.

Indicators point to a major recession, but exactly when remains unknown

Without mistake, traders should not dismiss the fact that the U.S. dollar index has rallied strongly against other major global currencies to reach its highest level in 20 years. This shows that investors are desperately seeking shelter in cash positions, exiting stock markets, foreign currencies and corporate debt.

Moreover, the gap between the U.S. Treasury 2y-year and 10-year notes widened to a record-high -0.57% on Sept. 22. Typically, when shorter-term government bonds have higher yields than long-term bonds — an inverted yield curve — it’s interpreted as heightened signs of a recession.

Adding to the concerns, on Sept. 22, the U.S. Federal Reserve reported an all-time high of $2.36 trillion in overnight reverse repurchase agreements. In a “reverse repo,” market participants lend cash to the FED in exchange for U.S. Treasuries and agency-backed securities. The excessive cash in investors’ balance sheets indicates a lack of trust in counterparty credit risk, which is a bearish indicator.

After laying out the three critical macroeconomic indicators hitting levels not seen in over 2 decades, two important questions are left. First, what is Bitcoin (BTC) and Ether (ETH) relation to traditional markets? More importantly, what impact should investors expect if the S&P 500 drops 20% and the housing market crashes?

Regardless of whether a person pays their bills using cryptocurrencies, energy prices, food and healthcare services are heavily dependent on the U.S. dollar. Commodity international transactions are mostly priced in USD, including imports, exports and the actual trading. So even if one pays their expenses using Bitcoin, odds are somewhere along the way, this value will be converted into fiat money.

The cost of borrowing USD impacts multiple economies

The main takeaway from the lack of an effective circular trade exclusively using cryptocurrencies is that everyone’s life depends on the U.S. dollar’s strength and borrowing cost. Unless one lives in a cave, isolated in a self-sufficient land, or on some communist island, when investors hoard cash and interest rates skyrocket, every market is impacted.

As for an eventual housing market collapse or another 20% crash in stock markets, the truth is its impact on Bitcoin and Ether are impossible to predict. From one side, there’s the pressure from holders scrambling to reduce their exposure and secure a cash position for an eventual longer-than-estimated crypto-winter. On the other hand, there could be a surge in investors looking for non-confiscatable assets or seeking protection from inflation.

That’s why Michael J. Burry’s story becomes relevant right now when every pundit and market analyst claims a near-future market collapse or the potential crash in housing prices. Bitcoin and Ether are facing an imminent global recession for the first time, and judging by March 2020, when a panic selling triggered by the Covid-19 crisis, those that stood for the long run were rewarded.

Korean startup Uprise lost $20M shorting LUNC

The crypto custodial service and AI trading platform managed to lose nearly all of its customers’ assets by shorting LUNC, the Terra Classic native token.

South Korean crypto investment startup platform Uprise reportedly lost around 99% of its assets worth about $20 million when it got liquidated shorting the Luna Classic (LUNC) token.

Uprise’s trading desk Heybit uses an artificial intelligence (AI) trading system that was designed to reduce the risks associated with leveraged trading.

Local news outlet Seoul Economic Daily reported on Wednesday that Uprise’s AI, which it calls a robo-advisor, made a disastrous misread in May on LUNC as it fell precipitously from $60 to fractions of a cent. The system shorted LUNC but got liquidated during the token’s bizarre price pumps along the way, leading to $20 million in customer losses and $3 million of its own losses. In total, Uprise lost about 99% of its assets.

Most users of Uprise’s Heybit service are high-net-worth individuals and corporations who stake their crypto for yield generated by the AI trading on futures markets. The firm has been backed by the Hashed crypto investment firm, Kakao Ventures and several banks and venture capital firms.

The firm has suspended services, but has not issued an official disclosure to its clients about the losses. An Uprise official confirmed to Seoul Economic Daily that:

“Due to great unexpected volatility in the market, there has been damage to customer assets. We plan to finalize the report on our virtual asset business soon.”

In addition to officially notifying its users, Uprise officials are reportedly working on a compensation plan for its customers so that it can continue to operate.

With Uprise in the spotlight, Seoul Economic Daily pointed out that it has not registered as a virtual asset service provider (VASP). It reported that Uprise officials feel that the firm is able to skirt the law requiring it to register as a VASP because it does not collect Korean Won nor directly invest in virtual assets, only futures.

Registration helps keep crypto exchanges in compliance with the notorious Travel Rule from the Financial Action Task Force.

Uprise is the latest centralized crypto service provider to reveal significant losses stemming from the Terra incident and subsequent contagion. It joins BlockFi, Celsius, and Voyager Digital among the list of firms that have had to take drastic measures to try and stay afloat. FTX US exchange has the option to buy BlockFi, Celsius has been unwinding loans, and Voyager filed for bankruptcy on Tuesday.