Margin trading allows investors to borrow stablecoins or cryptocurrencies to take advantage of their position and improve the expected return. For example, borrowing Tether (USDT) will buy Bitcoin (BTC), thereby increasing its long Bitcoin position.
Investors can also borrow BTC to trade a short position on margin, thus betting on a fall in price. This is why some analysts are monitoring the total amount of Bitcoin and Tether loans to see if investors are bullish or bearish.
Are Analysts Tipping Lower Based on Bitfinex Margin Data Only?
This week, some prominent analysts cited an increase in Bitcoin’s short positions on Bitfinex, peaking at 6,621 BTC on June 7. As Cointelegraph reported, independent researcher Fomocap found a visible correlation between short margin positions and the May 19 price crash.
However, when analyzing a wider range of data – including long margin positions, perpetual contract finance rate, and protective puts – there is no evidence that leading players plan are preparing for a surprise negative move.
A single case of Bitcoin margin shorts that increased before the negative price change should not be considered a leading indicator. In addition, one must take into account Bitcoin margin longs – an opposing force, usually greater.
As the chart above shows, even on May 17th, the number of BTC / USD long margin contracts exceeded shorts by 3.6, to 39,000 BTC. In fact, the last time this indicator fell below 2.0 favoring longs was November 26, 2020. The result was not good for shorts as Bitcoin rose 64% over the past 30 years. following days.
Whenever traders borrow Tether and stablecoins, they are probably long on cryptocurrencies. On the other hand, BTC borrowing is mainly used for short positions.
Theoretically, whenever the USDT / BTC loan ratio rises, the market is trending upward. The ratio at OKEx hit a low of 3.5 on May 20, favoring buying, but quickly returned to the 5.5 level. Therefore, there is no evidence of a significant movement in favor of shorts in the margin markets.
The perpetual term finance rate is still stable
Perpetual futures prices trade very close to regular spot exchanges which makes life much easier for retail traders as they no longer need to calculate the term premium.
This magic can only be achieved by the finance rate charged by buyers (buyers) when they ask for more leverage. However, when the situation is reversed and the shorts (sellers) are over-leveraged, the finance rate becomes negative and they are the ones who pay the costs.
As noted above, the funding rate has remained broadly stable since May 19. If there had been a massive increase in demand for short, the indicator would have reflected the movement.
The put-to-call ratio of options remains bullish
The call (buy) option offers its buyer price protection on the upside, and the put (put) option does the opposite. This means that traders aiming for neutral to bearish strategies will generally rely on puts. On the other hand, call options are more commonly used for bullish positions.
Note that neutral to bullish calls outnumber protective puts by almost 90%. If professional traders and whales had anticipated a stock market crash, this ratio would have been positively impacted.
Investors should not make trading decisions based on a single indicator, as the remaining markets and exchanges may not corroborate it. As of yet, there is no indication that big players are betting on Bitcoin short positions.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trade move involves risk. You should do your own research before making a decision.