Bitcoin (BTC) prices fell 11.5% from Aug. 16 to Aug. 18, resulting in $900 million worth of long positions being liquidated, causing prices to hit two-month lows. Before the drop, many traders expected a breakout in volatility to push prices higher, but this clearly did not. Due to the large number of liquidations, it is important to address the question of whether professional traders are profiting from the price crash.
Bitcoin just experienced one of the largest daily liquidations in history.
Since 4:30 pm yesterday, #bitcoin It fell 7.5% in 20 minutes, wiping out $42 billion in market value.
In this large-scale liquidation incident, the outflow of funds in one day was even more than when FTX crashed in November… pic.twitter.com/KmVNkXoOLw
— KobeissiLetter (@KobeissiLetter) August 18, 2023
Cryptocurrency traders generally believe that whales and market makers have an advantage in predicting major price movements, giving them an edge over retail traders. With advanced quantitative trading software and strategically positioned servers in play, the concept makes some sense. However, this does not protect professional traders from huge financial losses in times of market instability.
For larger professional traders, most of their positions may be fully hedged. Comparing these positions to previous sessions allows for an estimate of whether recent moves signal a broad correction in the cryptocurrency market.
Margin longs on Bitfinex and OKX are relatively high
Margin trading allows investors to expand their positions by borrowing stablecoins and using the funds to buy more cryptocurrencies. Instead, traders who borrowed bitcoin used it as collateral for short positions, suggesting they were betting on falling prices.
Bitfinex margin traders are known for quickly building up contracts with positions of 10,000 BTC or more, highlighting the involvement of whales and a large number of arbitrage platforms.
As the chart below shows, Bitfinex margin long positions stood at 94,240 BTC on Aug. 15, near a four-month high. This shows that professional traders were completely caught off guard by the sudden plunge in the price of Bitcoin.
Unlike futures contracts, the balance between margin longs and shorts is not inherently balanced. A high margin loan ratio indicates a bullish market, while a low margin loan ratio indicates a bearish market sentiment.
The chart above shows the OKX BTC Margin Lending Ratio, which was close to 35x on Aug. 16, favoring long positions. More importantly, the level is in line with the previous 7-day average. This means that even if previous external factors distort the indicator, it can be inferred that whales and market makers maintained their positions in the margin market before the Bitcoin price crash on August 16 and August 17. This information supports the unpreparedness of professional traders for negative price movements of any kind.
Futures Long-Short Data Proves Traders Are Unprepared
Top traders’ net long-short ratios exclude external factors that may specifically affect margin markets. Combining positions in perpetual and quarterly futures contracts provides a clearer picture of whether professional traders are leaning toward a bullish or bearish stance.
There are occasional differences in methodology between exchanges, prompting viewers to track changes rather than focus on absolute values.
Ahead of the Federal Reserve FOMC meeting minutes on August 16, prominent BTC traders on Binance had a long-short ratio of 1.37, in line with the peak levels observed in the previous four days. A similar pattern was seen on OKX, where the long-short indicator for major Bitcoin traders hit 1.45 before the start of the BTC price correction.
related: Why is Bitcoin falling?Analysts point to 5 potential reasons
Regardless of whether these whales and market makers increased or decreased their positions after the crash began, the data from BTC futures further confirms the lack of readiness to reduce exposure before August 16, whether in the futures or margin markets. Therefore, it is reasonable to assume that professional traders were taken by surprise and did not profit from the price crash.
This article is for general informational purposes only and is not intended and should not be construed as legal or investment advice. The views, ideas and opinions expressed here are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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