Pro traders were compelled to cut their losses after margin and futures markets became over-leveraged, creating a possible entry point for bullish bitcoin buyers. Since Celsius, Bitcoin has not restored the $24,000 support. It all went down after the popular staking and lending platform suspended withdrawals from its platform on June 13.
An increasing number of users think that Celsius mismanaged its funds after the collapse of Anchor Protocol on the Terra LUNA now LUNC ecosystem and many rumors of its insolvency continue circulating.
An even bigger issue emerged on June 14 after Three Arrows Capital (3AC) crypto venture capital firm allegedly lost $31.4 million through trading on Bitfinex. Moreover, 3AC was a major investor in Terra, which experienced a 100% crash late last month.
Unconfirmed reports state that 3AC faced liquidations reaching hundreds of millions from many positions that agitated the market heavily in the early hours of June 15, resulting in Bitcoin trading at $20,060, which is its lowest level since December 15, 2020.
Let us review the current derivatives metrics to understand whether June 15’s bearish trend represents top traders’ sentiment.
Margin Markets Deleveraged After A Small Spike In Longs
Margin trading lets investors borrow crypto and leverage their trading position to possibly increase returns. For instance, one can acquire cryptos by borrowing Tether (USDT) to enlarge exposure.
On the flip side, Bitcoin borrowers can short the crypto in case they bet on its price drop, and unlike futures contracts, the balance between margin longs and shorts is not always matched efficiently. That is why most analysts monitor the lending markets to determine whether the investors are leaning bearish or bullish.
Notably, the margin traders enhanced their leverage long (bull) position on June 14 to its highest level in two months.
Bitfinex margin traders are the most notorious for creating position contracts of 20,000 BTC or higher within a short time, which indicates the participation of whales and many other large arbitrage desks.
As the Bitcoin market charts indicate, even on June 14, the total number of BTC/USD long margin contracts surpassed the shorts by 49 times, at 107,500 BTC. For reference, the last time this specific indicator stood below 10, favoring longs, was on March 14. This result benefited the counter-traders at the time, as Bitcoin exploded by 28% over the following two weeks.
Bitcoin Futures Data Indicates Pro Traders Got Liquidated
Top traders’ long-to-short net ratio excludes externalities that may have affected the margin instruments. By carefully analyzing these whale positions on the spot, futures, and perpetual contracts, one can better understand whether professional traders are bearish or bullish.
It is crucial to note the existing methodological discrepancies between various crypto exchanges, so the absolute figures are less important. For instance, while Huobi traders have managed to maintain their long-to-short ratio relatively unchanged between June 13 and June 15, professional traders at Binance and OKX seem to have reduced their longs.
That movement may represent liquidations, which means that the margin deposit was quite insufficient to cover their longs. In such cases, the exchange’s automatic deleveraging mechanism happens by selling the Bitcoin position to minimize the exposure. Either way, the long-to-short ratio is affected and indicates a less bullish net position.
Buy Bitcoin NowLiquidations May Represent A Buying Opportunity
Data acquired from the derivatives markets, including margin and futures, indicate that the professional traders were not expecting such a severe and continuous price correction.
Although there has been a massive correlation to the stock market and the S&P index posted a 21.6% year-to-date loss, professional cryptocurrency traders did not expect Bitcoin to plunge another 37% in June.
While leverage lets one maximize gains, it may also compel the occurrence of cascading liquidations such as the recent events seen earlier this week. The automated trading systems of exchange and decentralized finance (DeFi) platforms sell investors’ positions at whatever price available when the collateral is inadequate to cover the risk and that puts massive pressure on spot markets.
The liquidations at times create an ideal entry point for those savvy and brave enough to counter-trade excessive corrections due to the absence of liquidity and the absence of bids on the trading platforms. Whether or not we have seen the final bottom, is something impossible to determine until several months after the current agitation and volatility have passed.
