Bitcoin price stalls at $12,400 but professional traders aren't worried

Bitcoin’s recent rejection at $12,400 triggered the liquidation of $234 million in futures contracts on derivatives exchanges. Despite a 30% gain in the past 30 days, it is holding at the $11,700 level as support levels have yet to be established.

Bitcoin has not seen lower lows since the 50% swing in mid-March, which caused the price to test the sub-$4,000 level.

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Bitcoin USD 4-hour chart, source: TradingView

Over the past three weeks, while there has been a clear uptrend, there have certainly been ups and downs. After a $1,400 plunge on Aug. 2 that led to the unwinding of $1 billion in futures contracts, traders were clearly not in the mood.

Yesterday, the average transaction fee per unit size on the Bitcoin chain hit the highest value after January 2018: According to data from OKLink, the transaction fee on the Bitcoin chain reached 214.46 BTC (about 2.78 million U.S. dollars) on October 28. ), the highest since June 4, 19. The unit-sized transaction fee reached 0.00166257 BTC/KB, a new high after January 23, 2018. In the past 24 hours, the average block reward on the Bitcoin chain was 8.47 BTC, and the transfer fee accounted for 26.2% of the block reward. [2020/10/29]

It is natural for the human brain to give more association to recent events, especially when presented with negative outcomes. Traders using leverage will undoubtedly have a more painful experience when faced with such a large unexpected red candle in a longer time frame uptrend.

Voice | eToro CEO: Regulatory pressure facing Libra will promote the adoption of Bitcoin: According to Zycrypto on June 22, eToro CEO Yoni Assia said that the regulatory pressure facing Libra will only further promote the adoption of Bitcoin. Regulators will continue to push for regulation of Libra, but bitcoin will benefit from such moves because it cannot be regulated, he said. [2019/6/22]

Excessive leverage from buyers will be reflected in financing rates. This is because perpetual futures contracts, also known as inverse swaps, have a margin usage fee.

Funding rates typically change every 8 hours and they ensure there is no over-exposure to exchange rate risk imbalances.

If the buyer uses more leverage than the seller, the financing rate will be positive and the buyer will pay. The opposite happens when the seller of a futures contract requires more margin.

CBOE Bitcoin futures net short position increased by 296 contracts, increasing for two consecutive weeks: CFTC foreign exchange position weekly report: As of the week of April 3, speculators' net short position in US dollars decreased by US$1.02 billion, the second consecutive week of decline, to 207.1 Billion, rising to $21.99 billion in the week ended March 20, the highest in a single week since August 2011. Speculators' net short position in CBOE bitcoin futures increased by 296 contracts, up for two consecutive weeks, to 1,786 contracts. [2018/4/7]

Bitcoin perpetual swap 8-hour funding rate, source: Skew

After a brief uptick on Aug. 10, funding rates were relatively quiet over the next seven days. That trend changed earlier in the week, with the gauge hitting 0.10%, which equates to 2% on a weekly basis.

Korean Regulators Conduct On-Site Inspections of Bitcoin Exchanges After Youbit Hack: South Korean regulators conduct on-site inspections of Bitcoin exchanges following the Dec. 19 Youbit hack. According to an official announcement issued by the Government Policy Coordination Office, the regulator conducted on-site inspections of more than a dozen bitcoin exchanges to determine whether they are compliant with regulations for trading in cryptocurrencies. According to the latest news released after the site visit, inspectors were not satisfied with what they found. "As a result of conducting on-site inspections of major virtual currency transactions, most of the surveyed companies (10 companies) conducted administrative and technical installation and operation of access control and overall encryption measures for security equipment and personal information, and found that these measures were still insufficient. It was the second time in 2017 that the exchange had been breached and prompted the exchange's parent company, Yaipan, to immediately cease trading and file for bankruptcy. The incident became controversial as South Korean authorities alleged that the hacking was carried out by hackers on behalf of the North Korean regime. [2017/12/28]

That doesn't necessarily translate into bullish investors, but it does suggest that it's the buyers who are using more leverage.

Volatility is the main measure of price volatility and can be calculated through historical prices or through options market pricing, known as implied volatility. This means that implied volatility is a measure of current conditions regardless of the daily volatility over the past week or month.

Only those Bitcoin options with strikes closest to the current underlying market level will be used, which means that the current price is between $11,000 and $13,000. These options are known as at-the-money options and are used in the calculation of implied volatility.

Bitcoin at-the-money option implied volatility, source: Skew

Note that the index has barely moved in the past 48 hours. That certainly wouldn't be the case if the market suddenly dropped $2,000. This strengthens the argument that the current Bitcoin correction is a healthy pullback rather than a trend-changing market move.

The data provided by the exchange shows traders' net long and short positions, which can determine whether professional traders tend to be bullish or bearish.

Despite the differences in methodology, observers will be able to monitor changes in the index, which provides a clear enough view of top traders' net exposure.

Top traders long/short, source: Binance, OKEx and Cointelegraph

Overall, traders on Binance and OKEx have held net-long positions since July 27, and even the $1,500 bitcoin price crash on Aug. 2 failed to shift this bullish position.

Analysts are getting more bullish on Bitcoin as the Federal Reserve reportedly considers not raising interest rates until inflation hits 2%.

Volume changes provide insight into increases and decreases in activity, especially after sharp price swings.

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Trading volumes across the cryptocurrency market are facing a downward trend, as the total market capitalization hovered close to $260 billion from mid-May until it finally broke the $280 billion resistance in late July.

Although it is not known whether the recent total market capitalization can hold at the level of 360 billion US dollars, the current 10-day average trading volume indicates that the market trend is good. There appears to be no sign of pressure on either bitcoin futures or options, as both perpetual contract funding and implied volatility metrics remain healthy.

While there is no single indicator or analysis that can determine short-term price action, top traders' net exposure points to volatile bullish momentum. By avoiding excessive leverage, traders are not heavily influenced by natural price fluctuations, even in long-term and unquestionably bullish markets.

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