Bitcoin (BTC) price is up 15% in the last 13 days and during that period over $530 million worth of bearish bets on BTC futures have been liquidated by traders versus bulls.
After rallying to $19,000 on Jan. 12, Bitcoin reached its highest price since the FTX exchange crash on Nov. 8. The move was largely driven by the US Consumer Price Index (CPI) expectation for December, which was in line with consensus at 6.5% for the year -year – and emphasized that inflationary pressures likely peaked in June at 9%.
Additionally, FTX attorney Andy Dietderich said Jan. 11 that $5 billion in cash and liquid cryptocurrencies had been reclaimed — fueling hopes of a partial return of client funds in the future. Speaking to a US bankruptcy judge in Delaware on Jan. 11, Dietderich said the company plans to sell $4.6 billion in non-strategic investments.
Let’s look at derivatives metrics to understand if professional traders are excited about Bitcoin’s rally to $19,000.
Margin usage increased as bitcoin price surged to $18,300 and above
Margin markets provide insight into how professional traders are positioned, and margin is beneficial for some investors as it allows them to borrow cryptocurrency to leverage their positions.
For example, one can increase engagement by borrowing stablecoins to buy bitcoin. On the other hand, Bitcoin borrowers can only short the cryptocurrency if they are betting on a falling price. Unlike futures contracts, the balance between longs and shorts on margin is not always even.
OKX stablecoin/BTC margin lending ratio. Source: OKX
The chart above shows that OKX traders’ Margin Lending Ratio rose sharply on Jan. 11, suggesting that professional traders added leverage longs as Bitcoin surged towards $18,300.
More importantly, the subsequent 2% correction on Jan. 12 that took Bitcoin to a low of $17,920 marked full margin reversal, meaning whales and market makers reduced their bullish positions using margin markets .
Currently at 21, the metric is vastly in favor of stablecoin borrowing, suggesting that bears are not confident about opening Bitcoin margin shorts.
Futures traders ignored Bitcoin price pump
The long-to-short metric excludes externalities that may have only impacted the margin markets. In addition, it collects data from on-site exchange clients’ positions, perpetual and quarterly futures contracts, providing better information on how professional traders are positioned.
There are occasional methodological discrepancies between different exchanges, so readers should be watching changes rather than absolute numbers.
Bitcoin long-to-short ratio of exchanges top traders. Source: coin jar
Despite bitcoin breaking the $18,000 resistance, professional traders have kept their leveraged long positions unchanged, according to the long-to-short indicator.
For example, the ratio for Binance traders remained firm at 1.08 from January 9th to January 12th. Meanwhile, top traders at Huobi trimmed their leverage longs as the indicator surged from 1.09 to 0.91 currently. Finally, on crypto exchange OKX, the long-to-short price edged up slightly in favor of longs, moving from 0.95 on Jan. 9 to 0.97 currently.
Traders using futures contracts were not confident enough to add leveraged bullish positions despite the price rally.
Related: 13% of BTC supply returns to profitability as Bitcoin experiences “massive” accumulation
Bitcoin price could retest $17,300
While margin data shows that significant leverage was used to push Bitcoin above $18,000, it suggests the situation was temporary. Most likely, these professional traders deposited more margin and consequently reduced their leverage after the event. Essentially, the metric is looking very healthy, as it shows that margin markets are not overbought.
As for the top trader’s long-to-short positions, the lack of demand for leveraged longs using futures contracts is somewhat concerning, but at the same time leaves room for additional buying power.
From a derivatives perspective, bulls should not worry even if Bitcoin retests $17,300 as derivatives indicators show little demand from short sellers and no excessive leverage from buyers.
This article does not contain any investment advice or recommendation. Every investment and trading move involves risk and readers should do their own research when making a decision.
The views, thoughts, and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.