Bitcoin traders increase leverage longs even as crypto critics say BTC is a ‘pure Ponzi’

Bitcoin (BTC) value has examined the $16,000 resistance a number of instances for the reason that 25% crash that occurred between Nov. 7 and Nov. 9, and a few critics will justify their bearish bias by incorrectly assuming that the failure of FTX trade ought to set off a a lot broader correction.

For instance, Daniel Knowles, a correspondent at The Economist, says the twenty sixth largest tradable asset on this planet with a $322 billion market capitalization is “astonishingly ineffective and wasteful.” Knowles additionally mentioned that “there is nonetheless no logical case for particularly Bitcoin. It’s pure ponzi.”

If you assume it via, for outsiders, Bitcoin’s value is the only most necessary indicator of success, no matter its valuation surpassing secular firms such as Nestle (NESN.SW), Bank of America (BAC) and Coca-Cola (KO).

Most folks’s want for centralized authority over their cash is so entrenched that cryptocurrency exchanges’ success and failure fee turns into the gatekeeper and success benchmark, when in actual fact, fairly the other is true. Bitcoin was created as a peer-to-peer financial transmission community, so exchanges should not synonyms for adoption.

It is price highlighting that Bitcoin has been attempting to interrupt above $17,000 for the previous seven days, so there is actually a lack of urge for food from consumers above that degree. The most definitely cause is that traders concern contagion dangers, much like what was seen with Genesis Block, the final FTX-related sufferer to halt service as a consequence of liquidity issues. According to latest studies, the corporate introduced plans to stop buying and selling and shutter operations.

Bitcoin value is caught in a downtrend, and it is going to be arduous to shake it, nevertheless it’s a fallacy to imagine that centralized cryptocurrency trade failure is the first cause for Bitcoin’s downtrend or a reflection of its precise worth.

Let’s have a look at crypto derivatives information to know whether or not traders stay risk-averse to Bitcoin.

Futures markets are in backwardation and this is bearish

Fixed-month futures contracts often commerce at a slight premium to common spot markets as a result of sellers demand extra money to withhold settlement for longer. Technically recognized as contango, this example is not unique to crypto property.

In wholesome markets, futures ought to commerce at a 4% to eight% annualized premium, which is sufficient to compensate for the dangers plus the price of capital.

Bitcoin 2-month futures annualized premium. Source: Laevitas.ch

Considering the information above, it is evident that derivatives traders flipped bearish on Nov. 9, as the Bitcoin futures premium entered backwardation, that means the demand for shorts — bearish bets — is extraordinarily excessive. This information displays skilled traders’ unwillingness so as to add leveraged lengthy (bull) positions regardless of the inverted value.

The longs-to-shorts ratio exhibits a extra balanced scenario

To exclude externalities which may have solely impacted the quarterly contracts, traders ought to analyze the highest traders’ long-to-short ratio. It gathers information from trade purchasers’ positions on the spot, perpetual and fixed-calendar futures contracts, thus higher informing on how skilled traders are positioned.

There are occasional methodological discrepancies between completely different exchanges, so readers ought to monitor adjustments as a substitute of absolute figures.

Bitcoin traders increase leverage longs even as crypto critics say BTC is a ‘pure Ponzi’
Exchanges’ prime traders Bitcoin long-to-short ratio. Source: Coinglass

Even although Bitcoin failed to interrupt the $17,000 resistance on Nov. 18, skilled traders barely elevated their leverage lengthy positions based on the long-to-short indicator. For occasion, the Huobi traders’ ratio improved from 0.93 on Nov. 16 and presently stands at 0.99.

Related: Crypto Biz, FTX fallout leaves blood in its wake

Similarly, OKX displayed a modest increase in its long-to-short ratio, as the indicator moved from 1.00 to the present 1.04 in two days. Lastly, the metric stood flat close to 1.00 on the Binance trade. Thus, such information present traders didn’t turn into bearish after the newest resistance rejection.

Consequently, one shouldn’t conclude that the futures backwardation contemplating the broader evaluation of the long-to-short ratio, present no proof of extreme bearish demand from whales and market makers.

It will doubtless take a while till traders exclude the potential regulatory and contagion dangers attributable to FTX and Alameda Research’s downfall. Until then, a sharp restoration for Bitcoin appears unlikely for the brief time period.