Bitcoin Traders Increase Leverage Even As Crypto Critics Say BTC Is ‘Pure Ponzi’

The price of Bitcoin (BTC) has tested the $16,000 resistance several times since the 25% crash that occurred between November 7-9, and some critics will justify their bearish bias by incorrectly assuming that the failure of the FTX exchange should trigger a much broader correction.

It’s kind of annoying that Bitcoin is still selling for $16,000, even after all this FTX news. I mean, I guess the volume is low, but what the hell will it take to properly crush this zombie “currency” to its rightful near-zero value?

—Daniel Knowles (@dlknowles) November 18, 2022

For example, Daniel Knowles, correspondent for The Economist, says the world’s 26th-largest tradable asset with a market capitalization of $322 billion is “astonishingly wasteful and useless.” Knowles also stated that “there is still no logical case for Bitcoin specifically. It’s pure ponzi.

If you think about it, for outsiders, Bitcoin’s price is the most important indicator of success, regardless of its valuation surpassing secular companies such as Nestle (NESN.SW), Bank of America (BAC) and Coca -Cola (KO).

Most people’s need for centralized authority over their money is so ingrained that the success and failure rate of cryptocurrency exchanges becomes the gatekeeper and benchmark of success, when in fact it is quite the opposite is true. Bitcoin was created as a peer-to-peer monetary transmission network, so exchanges are not synonymous with adoption.

It’s worth pointing out that Bitcoin has been trying to break above $17,000 in the past seven days, so there’s definitely a lack of appetite from buyers above that level. The most likely reason is that investors fear contagion risks, similar to what was seen with Genesis Block, the latest FTX-linked casualty to halt service due to liquidity issues. According to recent information, the company has announced its intention to cease business operations and close its doors.

Bitcoin price is stuck in a downtrend, and it will be hard to shake it off, but it is a mistake to assume that the failure of the centralized cryptocurrency exchange is the main reason for the trend. downside of Bitcoin or a reflection of its real value.

Let’s look at crypto derivatives data to understand if investors remain risk averse towards Bitcoin.

Futures markets are in backwardation and it is bearish

Fixed-month futures typically trade at a slight premium to regular spot markets, as sellers demand more money to delay settlement longer. Technically known as contango, this situation is not exclusive to crypto assets.

In healthy markets, futures should trade at an annualized premium of 4-8%, which is enough to offset risk plus the cost of capital.

Given the above data, it is evident that derivatives traders turned bearish on Nov. 9 as the Bitcoin futures premium entered backwards, meaning demand for shorts – bearish bets – is extremely high. This data reflects the reluctance of professional traders to add leveraged long (bullish) positions despite the inverted cost.

The long/short ratio shows a more balanced situation

To rule out externalities that might have impacted only quarterly contracts, traders need to analyze the long/short ratio of top traders. It gathers data from on-site trading client positions, perpetual futures and fixed-timeframe contracts, providing better insight into the positioning of professional traders.

There are sometimes methodological discrepancies between different exchanges, so readers should monitor changes rather than absolute numbers.

Even though Bitcoin failed to break through the $17,000 resistance on November 18, professional traders slightly increased their leveraged long positions according to the long to short indicator. For example, the Huobi Trader Ratio improved from 0.93 on November 16 and currently stands at 0.99.

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

Similarly, OKX posted a modest increase in its long/short ratio, with the indicator rising from 1.00 to 1.04 currently in two days. Finally, the metric held steady near 1.00 on the Binance exchange. Thus, this data shows that traders did not turn bearish after the latest resistance rejection.

Therefore, it should not be concluded that the futures discount, given the broader analysis of the long/short ratio, shows no evidence of excessive bearish demand from whales and market makers. .

It will likely take some time before investors rule out the potential regulatory and contagion risks caused by the fall of FTX and Alameda Research. Until then, a strong rally in Bitcoin seems unlikely in the near term.