Bitcoin derivatives favor the bulls, but the data shows that top traders added short positions when Bitcoin surged above $ 12,000,000.

When Bitcoin broke the $ 12,000 resistance, the derivatives market was in an over-optimistic mood. The futures basis and options 25% delta deviation both hit similar levels to October 12th when Bitcoin tested $ 11,700 but did not maintain momentum.

What sets the current situation apart from 10 days ago is the position of the top traders. On October 12, these traders increased their long positions, but during Bitcoin’s recent spike above $ 12,000, these professional traders are increasingly opening short positions.

Despite this change in sentiment, traders should not automatically conclude that yesterday’s pump will become bearish based on the long-to-short indicator alone. For starters, there is no way of knowing for sure where the top traders are outside of an exchange.

Because of this, derivative pricing is a better way of assessing how bullish or bearish professional traders are. This indicator focuses on real market conditions while both fear and greed and the put-to-call ratio tend to be out of date.

Futures markets tend to trade at higher fees than regular spot exchanges. This event is not exclusive to the crypto market, but a derived effect.

The futures (or base) premium should be between 5% and 10% of the annual interest rate for healthy markets. Readings above this range indicate too much optimism as traders are betting on much higher prices. Conversely, a negative futures premium indicates a downward trend.

Bitcoin 3-Month Futures Annual Premium | Source: Skew

The graph above shows that the underlying indicator is approaching over-optimism, similar to October 12th.

Traders shouldn’t confuse optimism with leverage, as positive funding rates for perpetual contracts are also required to confirm this thesis.

The perpetual financing rate for futures is paid every 8 hours on most exchanges and a fee is paid from long (buyer) to short (seller) if the financing rate is positive. This situation would have been the defining characteristic of the average overbought buyer, but it hasn’t happened before.

Bitcoin Funding Rate for Perpetual Contracts | Source: data on digital assets

The above data shows how the funding rates have changed even though there were no sustainable funding periods. The standard measure for this indicator is 8 hours. Therefore, a rate of 0.05% equals 1% per week. The opposite happens with negative funding rates, when the short position pays them off.

There was a similar move for the Bitcoin options market when the 25% delta deviation indicator entered an overly confident bullish area. Negative skewness shows that call options are valued higher than similar put options, suggesting bullish sentiment. On the other hand, a positive trend indicates a downward trend.

25% Delta Deviation of 3 Month Bitcoin Options | Source: Skew

Notice how the deviation indicator approaches a 6 month low, indicating trader optimism. This situation is the same as on October 12th when Bitcoin was up 10% in 4 days. While nothing is stopping the skew indicator from staying at current levels in the long term, this is unlikely in Bitcoin’s history.

After reading the derivatives market indicators, one can conclude that professional traders are trending up by adding long positions above $ 12,000. However, the data provided by the exchange on the long-short ratios of top traders shows that this is not the case.

Long / short ratio | Source: Binance and OKEx

There are often differences between the exchange methods, so readers are advised to track changes rather than absolute metrics. From the above data, it is safe to say that the top traders are neutral or adding long positions before October 12th.

On the flip side, there has been significant movement on both exchanges in the past two days as top traders are more active on the sell side as Bitcoin hits $ 12,000.

Hence, regardless of the bullish bias of the derivative indices, these traders show a lack of short-term optimism.

These seemingly contradicting signals could reflect a recent 15% rally in two weeks’ time causing some traders to take profit. While derivatives markets continue to favor the bullish move, top traders seem to have no reason to add long positions at current levels.

While the top traders’ predictions seem to have failed at the moment, they seem in no rush to FOMO at the current level. Until long positions are built well above $ 12,000, this support cannot be considered strong enough.

Disclaimer: This is not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.

Teacher

According to Cointelegraph

Follow the Youtube Channel | Subscribe to telegram channel | Follow the Facebook page