Bitcoin traders increase leverage longs even as crypto critics say BTC is a “pure Ponzi”

1 year ago

Bitcoin (BTC) terms has tested the $16,000 absorption aggregate times since the 25% clang that occurred betwixt Nov. 7 and Nov. 9, and immoderate critics volition warrant their bearish bias by incorrectly assuming that the failure of FTX exchange should trigger a overmuch broader correction.

It's benignant of annoying maine that Bitcoin is inactive selling for $16k-ish, adjacent successful the aftermath of each of this FTX news. I mean I presume the measurement is low, but what connected world volition it instrumentality to decently crush this zombie "currency" backmost to its rightful worth of astir zero?

— Daniel Knowles (@dlknowles) November 18, 2022

For example, Daniel Knowles, a analogous astatine The Economist, says the 26th largest tradable plus successful the satellite with a $322 cardinal marketplace capitalization is "astonishingly useless and wasteful." Knowles besides said that, "there is inactive nary logical lawsuit for specifically Bitcoin. It's axenic ponzi."

If you deliberation it through, for outsiders, Bitcoin's terms is the azygous astir important indicator of success, careless of its valuation surpassing secular companies specified arsenic Nestle (NESN.SW), Bank of America (BAC) and Coca-Cola (KO).

Most people's request for centralized authorization of their wealth is truthful entrenched that cryptocurrency exchanges’ occurrence and nonaccomplishment complaint becomes the gatekeeper and occurrence benchmark, erstwhile successful fact, rather the other is true. Bitcoin was created arsenic a peer-to-peer monetary transmission network, truthful exchanges are not synonyms for adoption.

It is worthy highlighting that Bitcoin has been trying to interruption supra $17,000 for the past 7 days, truthful determination is surely a deficiency of appetite from buyers supra that level. The astir apt crushed is that investors fearfulness contagion risks, akin to what was seen with Genesis Block, the last FTX-related victim to halt work owed to liquidity concerns. According to caller reports, the institution announced plans to cease trading and shutter operations.

Bitcoin terms is stuck successful a downtrend, and it volition beryllium hard to shingle it, but it’s a fallacy to presume that centralized cryptocurrency speech nonaccomplishment is the superior crushed for Bitcoin’s downtrend, oregon a reflection of its existent value.

Let's look astatine crypto derivatives information to recognize whether investors stay risk-averse to Bitcoin.

Futures markets are successful backwardation and this is bearish

Fixed-month futures contracts usually commercialized astatine a flimsy premium to regular spot markets due to the fact that sellers request much wealth to withhold colony for longer. Technically known arsenic contango, this concern is not exclusive to crypto assets.

In steadfast markets, futures should commercialized astatine a 4% to 8% annualized premium, which is capable to compensate for the risks positive the outgo of capital.

Considering the information above, it is evident that derivatives traders person flipped bearish connected Nov. 9, arsenic the Bitcoin futures premium entered backwardation, meaning the request for shorts — bearish bets — is highly high. This information reflects nonrecreational traders’ unwillingness to adhd leveraged agelong (bull) positions contempt the inverted cost.

The longs-to-shorts ratio shows a much balanced situation

To exclude externalities that mightiness person solely impacted the quarterly contracts, traders should analyse the apical traders' long-to-short ratio. It gathers information from speech clients' positions connected the spot, perpetual and fixed-calendar futures contracts, frankincense amended informing connected however nonrecreational traders are positioned.

There are occasional methodological discrepancies betwixt antithetic exchanges, truthful readers should show changes alternatively of implicit figures.

Even though Bitcoin failed to interruption the $17,000 absorption connected Nov. 18, nonrecreational traders somewhat accrued their leverage agelong positions according to the long-to-short indicator. For instance, the Huobi traders' ratio improved from 0.93 connected Nov. 16 and presently stands astatine 0.99.

Similarly, OKX displayed a humble summation successful its long-to-short ratio, arsenic the indicator moved from 1.00 to the existent 1.04 successful 2 days. Lastly, the metric stood level adjacent 1.00 astatine the Binance exchange. Thus, specified information amusement traders did not go bearish aft the latest absorption rejection.

Consequently, 1 should not reason that the futures backwardation considering the broader investigation of the long-to-short ratio, amusement nary grounds of excessive bearish request from whales and marketplace makers.

It volition apt instrumentality immoderate clip until investors exclude the imaginable regulatory and contagion risks caused by FTX and Alameda Research's downfall. Until then, a crisp betterment for Bitcoin seems improbable for the abbreviated term.

The views and opinions expressed present are solely those of the writer and bash not needfully bespeak the views of Cointelegraph.com. Every concern and trading determination involves risk, you should behaviour your ain probe erstwhile making a decision.

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