Bitcoin (BTC) price rose today to an all-time high of $ 44,900 shortly after Tesla announced a $ 1.5 billion investment. This event resulted in the liquidation of $ 555 million of short trades within two hours, and it happened when the open interest in Bitcoin futures reached $ 13.7 billion, which is only 3% less than its historic high.
These price movements have greatly increased the cost of carrying long positions, especially for those using permanent futures contracts. This indicator raised the yellow flag about the effectiveness of these investors and their potential impact on prices.
As explained above, total open interest in Bitcoin futures reached an all-time high of $ 15 billion.
When unexpected positive news hits the market, it is natural for players to enter positions of maximum leverage. This happens to both short sellers, whose margins decrease due to losses, and buyers who tend to increase their positions.
Bonds with insufficient margin are liquidated as their positions are terminated by force and their leverage decreases. On the other hand, long positions are profitable, so increasing the position does not increase the leverage as much.
After the initial pump, the funding rate and fees paid by long positions are expected to increase to maintain the open highs of their futures (reverse swaps).
As explained above, the 8 hour fee charged to compensate for the eventual leverage imbalance between buy and sell trades has just reached 0.25%. This rate equates to 5.4% per week, which is very important for holders.
It should be noted that even if Bitcoin continues to rally, as we saw on January 29th, the funding rate tends to adjust itself. There are two main reasons behind this: Leveraged buyers depositing more money and short arbitrage offices for permanent futures contracts while simultaneously buying bitcoin.
Funding ratio 0.05% to 0.10% per 8 hours is standard and expected during a bull market. This indicator indicates monthly fees from 4.6% to 9.4% and won’t be a problem for leveraged long trades.
To understand how the whales and arbitrage bureaus can position themselves during this period, it is helpful to take a close look at the long to short ratio of the major traders on the major exchanges.
OKEx bought pre-pump dealers
Binance’s top traders held a 33% net buy position in favor of long positions before the February 8 rally, which is just above the 26% average for two weeks. Once the Tesla news reached the press, they increased their longs and pushed the index to 46%, its highest level in nearly a month.
On the other hand, major Huobi merchants remained relatively unaffected by the news. Their net position was stable at 0.74, which means that 26% favored short positions before February 8th. Their current net short positions of 28% remained in line with the previous two weeks’ average.
Finally, OKEx’s top traders increased their net long positions from February 6th to the early hours of February 8th, reaching 14% net long position. These traders correctly predicted the rally in one way or the other, and cut their net longs as bitcoin reached an all-time high.
The huge intraday funding rate might be a nuisance to long long positions, but there is currently no sign of excessive buyer’s influence. At least for these big market makers and the arbitrage bureaus that make up most of the big dealers on the exchanges.
This indicates that there is room for further price spike from Bitcoin.
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