After Bitcoin (BTC) price flirted with an all-time high of $42,000 on January 8, it stabilized in a tightening range of between $39,000 to $41,500 over the past two days and structure pennant on the shorter timeframe suggests that a break of $45,000 is possibility.
This all changed suddenly on January 10 as the $39,000 support failed to hold and Bitcoin price entered a sharp correction.
A swirling and ruthless 26.6% drop took BTC down to $30,100 over the next 30 hours and $1.5 billion in tiered liquidations on derivatives exchanges prompting the correction. Interestingly, this happened just as open interest in BTC futures hit an all-time high of $12.7 billion.
Today’s price action presents a tale of doom, gloom, and liquidation, but what it fails to mention is that Bitcoin price fell by 20.4% just one week ago while testing levels below $28,000.
During a similar price event, a total of $1.2 billion in futures was liquidated, so today’s price movement is not much different from what the market experienced a week ago on January 11.
As the chart above shows, BTC bounced back by 11% one hour after dropping below the $28,000 level. What may surprise traders this time is the 13% increase from $32,200 to $36,400 that created false bottom.
To understand if that is the case, one should analyze the long-to-short ratio of crypto exchange traders and hourly liquidations.
OKEx Top Traders Buy Above
Exchange-provided data highlights traders’ long-to-short net positioning. By analyzing each client’s position on the spot, perpetual and futures, one can get a clearer view of whether professional traders are skewed bullish or bearish.
As such, sometimes there are differences in methodology between different exchanges, so you should monitor changes, not absolute numbers.
Top Traders on Binance are on average 23% favoring long positions over the last 30 days. This was not the case on January 7th, when they started adding long positions to a peak of 59% in the early hours of January 10th.
The move came as BTC broke through the $37,000 resistance and opened its way to $41,500. Therefore, Binance’s top traders mostly react after every BTC price move instead of trying to anticipate it.
On the other hand, top traders at Huobi have averaged a long-to-short ratio of 0.91 over the last 30 days, thus supporting a net short position of 9%. From January 8th to the early hours of January 10th, these traders had increased their short positions, hence profit-taking as BTC failed to break the $42,000 level.
The trend returned as BTC lost $39,000 support, and top trader Huobi reduced their 28% net shortfall to 4% in an attempt to catch up.
Lastly, top trader OKEx has added long positions, pushing the indicator from 1.00 (flat) in the early hours of January 8th to a ratio of 1.79 in favor of long positions in the early hours of January 11.
These traders bought above and were the ones who were liquidated as the price of BTC fell by 26%. Their long-to-short ratio hit 1.00 (flat) again as BTC hit $34,000 on January 11.
Bitfinex Traders Also Surprised
Bitfinex collects weekly data on the top traders’ profits and losses, although it is possible for users to ‘opt-out’ from this ranking. Over the past 24 hours, the bottom 10 lost a combined $153.3 million.
Relevant losses during crash suddenness does not mean that Bitfinex traders are doing everything wrong. Some traders may be in a bad position, but overall they have been profiting during the rally. Currently, Bitfinex traders are back in ‘neutral’ positions according to their historical levels.
Exchange-provided data shows that Bitfinex’s long-to-short ratio increased from 2 to 9, supporting long positions between November 25 and December 21.
To put things in perspective, the 6-month moving average is at 6, leaning towards the long. Thus, considering the leverage data of margin products, these traders turned out to be very profitable.
It is also important to consider that Bitcoin has an average daily volatility of 3.75%. Therefore, this big correction should be expected.
Bitcoin faced a 50% intraday drop on March 12, 2022, but for those patient enough to persevere through the bearish period, an 11x rally followed as the cryptocurrency rose from $3,600 to nearly $42,000.