Bitcoin Derivative Positions Looks Relatively Unchanged and Still Leans Bullish

No Evidence of Aggressive Bitcoin Shorting
Derivatives and futures markets continue to dominate cash Markets in volume
Bitcoin Futures Prices Remain in Contango
Crytpo and Bitcoin Market Cap Story of Day

Crytpo and Bitcoin Market Cap Story of Day





Crypto Markets Continued To Sell-Off Over The Weekend - Market Dynamics Suggest The Pressure Is Likely More A Function Of Deleveraging Than Bearish Repositioning

Crypto Takeaway: Weekend weakness saw bitcoin (BTC) ultimately make lows in the range of USD 6,700 before rebounding. The decline saw BTC's 14-day RSI hit the 3rd lowest reading in 2-years.

We'd suggest there are several factors that point this to a deleveraging over a major spot liquidation or aggressive shorting.

1) Derivatives Continue to Dominate: As we'd previously pointed out, spot volumes in the last quarter have drastically underperformed derivative activity. The same was seen this weekend when BitMEX saw 5.34B in 24-hours activity (nearly twice the yearly average) while the most active crypto-fiat on/off-ramp Bitfinex (BFX) saw only 275M in volume or just over the 365-day average. With platforms such as BitMEX averaging 8x leverage per-position, derivatives activity almost certainly implies higher-leveraged trading.

2) No Evidence of Aggressive Shorting: According to datamish (chart), while BTC shorts have increased marginally during the sell-off, they have not kept pace with BTC longs initiated. Furthermore, the overnight rebound has seen shorts decrease notably while longs have remained relatively flat. Chart below plots BTC Longs / Shorts - Throughout the most recent sell-off BTC longs (green) have actually increased more than BTC shorts (red)...

3) Futures Prices Remain in Contango: According to data from the three most active BTC futures platforms are in contango. BitMEX's March 2020 contract, for example, is currently trading about USD 75 or 1.05% above its perpetual swap. Such dynamics have remained relatively static throughout the weakness and do not suggest the market is repositioning mid/long-term bearish.

Ultimately, in spite of the sell-off, trader positioning looks relatively unchanged and leans bullish. Assuming that maintains one would expect a more swift resolution to the weakness than if market dynamics had been turned on their head.

About the Author

FRNT Financial is a technology and sales layer that offers institutional and accredited investors access to various forms of exposure to crypto-assets.