Bitfinex Bitcoin margin long to short ratio hits all-time high

September 12th will probably leave a mark that will last for quite some time. Bitfinex exchange traders have significantly reduced bets on bearish bitcoin (BTC) with leverage, and the lack of demand for short selling may have been due to hopes for cool inflation data. I have.

The bears may not have been confident, but the August US Consumer Price Index (CPI) appears to be heading in the right direction, beating market expectations. The inflation index, which tracks a broad basket of goods and services, rose 8.3% year-on-year. More importantly, the energy price component fell by 5% over the same period, offset by higher food and housing costs.

US equity indices fell on the heels of worse-than-expected macroeconomic data, with tech-heavy Nasdaq Composite Index futures down 3.6% in 30 minutes. As the cryptocurrency mood deteriorated, the price of Bitcoin dropped 5.7% over the same period, erasing the gains of the last three days.

It would be too simplistic to attribute market weakness to a single inflation indicator. A survey of global fund managers conducted by Bank of America found that 62% of respondents said a recession was likely, his highest since May 2020. Estimated value. The research paper he collected data the week of September 8 and was led by strategist Michael Hartnett.

Interestingly, bitcoin margin traders have never been more bullish, according to a metric.

Margin traders flew away from bearish positions

Margin trading allows investors to leverage their positions by borrowing stablecoins and using the proceeds to buy more cryptocurrencies. On the other hand, when these traders borrow Bitcoin, they use Bitcoin as collateral for short sales. In other words, you are betting that the price will fall.

As such, some analysts monitor Bitcoin and stablecoin gross lending to see if investors are bullish or bearish. Interestingly, the Bitfinex margin trader entered his ratio long/short for maximum leverage on September 12th.

Bitfinex margin traders have been known to create over 20,000 BTC position contracts in a very short amount of time, demonstrating the participation of whales and large arbitrage desks.

As the chart above shows, on September 12, the number of long margin contracts for BTC/USD was 104,000 BTC, 86 times the number of short contracts. For reference, the last time this metric topped 75 and gave Long the edge was on November 9, 2021. Unfortunately for the bulls, the result did the bears a favor as Bitcoin plunged 18% over the next 10 days.

Derivatives traders were overexcited in November 2021

To understand how bullish or bearish professional traders are positioned, we need to analyze futures basis rates. This indicator, also known as the futures premium, measures the difference between futures contracts and the current spot market on regular exchanges.

Three-month futures typically trade at a premium of 5% to 10% per annum. This is considered the opportunity cost of arbitrage trading. Notice that in the November 2021 rally, Bitcoin investors paid an excessive premium for going long (buying), in stark contrast to the current situation.

The Sept. 12 Bitcoin futures contract was trading at a 1.2% premium to the regular spot market. Such a level below 2% for him has been the norm since Aug. 15, leaving no doubt about the trader’s lack of leverage buying activity.

Related: This week’s Ethereum Merge could be the most significant change in crypto history

Possible Causes of the Surging Margin Lending Ratio

Something must have caused the short margin traders on Bitfinex to trim their positions, especially given that the longs (bullish) were flat for the seven days ending Sept. 12. . It rose 19% between September 6th and 12th.

Other catalysts may have led to the unusual imbalance between longs and shorts. For example, investors may have moved collateral from bitcoin margin trading to ethereum and sought some leverage as the merge approached.

Finally, the bears may have decided to temporarily close their margin positions due to the volatility surrounding US inflation data. Regardless of the rationale behind the move, there is no reason to believe that the market has suddenly become very optimistic as futures market premiums paint a very different scenario than November 2021.

The bears still have a half-glass reading as margin traders on Bitfinex have room to add more leveraged short (sell) positions. Bulls, on the other hand, can rejoice that these whales clearly have no interest in betting on prices below $20,000.

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