Bitcoin (BTC) bears should watch out for a potential blow as the number of margined short positions on the Bitfinex exchange crashes by roughly 25%.
The dataset dropped to 11,066 BTC as of 12:20 GMT Saturday, compared to 14,897 BTC at the session's open. Meanwhile, the drop came as a part of a bigger downside move that started on July 15. On the day, the total number of margined short positions had reached 17,053 BTC.
In simple terms, BTCUSDSHORTS represents the number of margined bearish positions on Bitfinex, measured in BTC. Traders borrow funds from Bitfinex — their broker — to bet on bearish outcomes for the instrument BTC/USD. That said, the latest data shows that traders have reduced their leveraged bearish exposure in the Bitcoin market.
Bitcoin spike expected?
Popular trader Scott Melker claimed that each massive drop in the BTCUSDSHORTS positions on Bitfinex leads to a run-up in the spot Bitcoin prices, adding that he will be watching markest for a similar bullish reaction.
Bitfinex whale may be starting to wind down those shorts. Each time they drop, price has risen. Will be watching. pic.twitter.com/5F40LYjMVL— The Wolf Of All Streets (@scottmelker) July 16, 2021
Throwing a closer look at the BTCUSD-BTCUSDSHORTS correlation showed an erratic positive correlation. The Bitfinex short positions went for a Bear Run after December 2020, a period that coincided with a spike across Bitcoin spot and derivatives markets.
In April-May, a run-down in Bitfinex short positions coincided with the Bitcoin price surging from sub-$45,000 to a record high of $65,000.
Nonetheless, similar BTCUSDSHORTS crashes in June—at best—kept Bitcoin stabilized above a psychological support level of $30,000, if not pumped it outright.
Downside pressure on Bitcoin sustains despite a recent drop in BTCUSDShorts also as Grayscale Investments unlock 16,000 BTC worth of its Grayscale Bitcoin Trust (GBTC) shares on July 18, after a six-month lock-up period.
JPMorgan & Chase strategists led by Nikolaos Panigirtzoglou warned in June that Grayscale's massive unlocking event could become the source of the next selling wave in the Bitcoin market.
On-chain analyst Willy Woo echoed similar concerns last week, explaining that when GBTC premium drops relative to the Bitcoin units held in Grayscale's reserves, it tends to divert investors from spot markets.
"Investors now have more incentive to by GBTC shares rather than BTC, it diverts some of the buying pressure on BTC spot markets," said Woo. "This is bearish."
(1) is sudden and directly impactful than while (2) acts very slowly. Thus it's a bullish.— Willy Woo (@woonomic) July 6, 2021
The over all impact over the long term is neutral as it's all arbitrage which balances out in time. What we are analysing is the short term demand/supply imbalances which may impact price.
Bitcoin holds $31K
As an optimistic BTCUSDSHORTS drop offsets a pessimistic GBTC unlock event, the spot BTC/USD exchange rate holds $31,000 as its interim support.
BTC/USD has repeatedly tested the $30,000-$31,000 range as support before rebounding higher. A maximum of its retracement has been able to pierce through the $35,000-resistance level. Nonetheless, profit-taking sentiment pushed the pair back toward $30,000.
As a result, the bearish sentiment for Bitcoin among analysts is extremely high, below $30,000. For instance, pseudonymous chartist Fomocap sees BTC/USD crashing to $20,000 if the pair closes below $30,000.
Weekly. Price get rejected from 39k. Then 35k. Cont to squeeze down with higher pressure. Below middle channel. Breaking below 30k definitely comes 20k support. It's just how gravity works. But still holding so far .. #Bitcoin pic.twitter.com/2qpKWGL4cF— Fomocap (@Workedia) July 16, 2021
NebraskanGooner also expects a "nuke" like scenario for Bitcoin should it drop below $30K.
The formation of a potential inverse cup and handle formation also sees Bitcoin crashing below $20,000 on the next breakdown below the $30K-$31K range, as shown in the chart below.
Woo rested on on-chain fundamentals to predict a bullish outcome. The analyst said that smart money has ceased selling while long-term investors have been absorbing Bitcoin at peak levels just as price flirts with $30K-support.
"Coins are moving away from speculators to long-term investors (strong hands) now at a rate unseen since February when price propelled from $30k to $56k," he wrote in his recent note to clients, adding:
"I’m expecting price to break from its bearish sideways band in the coming week followed by a recovery to the $50k-$60k zone before some further consolidation."
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