Psychological Clash: A Group of Traders on CME Increases Short Positions on Bitcoin
Leveraged traders of the Chicago Mercantile Exchange (CME) are ramping up short positions in bitcoin, while the cryptocurrency continues to trade for about $ 19,000. According to a report released every Friday, the volume of such positions has been at record levels for the past two weeks..
The total open interest in the CME bitcoin futures market reached a maximum of $ 1.3 billion by the end of November. In general, the beginning of November was marked by a decrease in the volume of short positions, however, margin traders have continued to add them since the beginning of September. During this time, the price of bitcoin has grown by 60%. Borrowed funds account for 62% of the open interest of the CME Bitcoin futures market.
As analyst Josh Olshevich explained, some of these positions were probably opened by market participants hedging long positions on other trading platforms in the event of a decline in the cryptocurrency rate..
Notably, the rest of the CME client categories are not showing such bearish sentiment. Thus, “other reportable” users, who account for 17% of open interest, enter long positions, the volume of which, in their case, approaches historical highs..
The Bitcoin Fear and Greed Index has remained in the “extreme greed” zone since early November – the longest such period in history. The indicator is calculated based on several characteristics, including market volatility, momentum, trading volumes, social media activity and dominance of the first cryptocurrency..
Since November 5, the index has not left the zone of “extreme greed”. It remained in it during the fall of Bitcoin to $ 16,000 before resuming the rise at the end of last month, dropping only to 86, while all values above 80 correspond to the extreme indicator. According to the creators of the instrument, this state of affairs may portend an upcoming correction..
The Fear and Greed Index was launched in February 2018, so there is no way to compare its current behavior with the 2017 highs. Nevertheless, the rise of the indicator to a record 95 points in June 2019 coincided with the beginning of the correction from the local price peak. The same index value was recorded on December 1 this year..
Psychologically significant level
Observers note that the $ 19,500 – 20,000 zone turned out to be strong resistance on Bitcoin’s path to overcome a psychologically significant level and accumulated a significant volume of sell orders.
“There is a huge number of sellers submitting bids of about $ 20,000, which is no doubt creating a strong level of resistance,” said Simon Chen, chief investment officer of Babel Finance. “People are trying to sell at these levels based on what happened during the 2017 bull market.”.
Trade Terminal COO Lingxiao Yang says there is a “key psychological collision” at the $ 20,000 level, noting that bitcoin has climbed from $ 14,000 to current highs in just a month. According to him, fear drives primarily retail investors, while institutions use any opportunity to add positions on price pullbacks. MicroStrategy yesterday announced that it has invested another $ 50 million in bitcoin, in addition to the $ 425 million it invested in August-September..
“The fact that whales do not withdraw bitcoins from exchanges means that these coins are available for sale. If the whales thought that bitcoin would go up, they would have withdrawn a lot, ”said Ki Yong Joo, CEO of the CryptoQuant analytical platform..
Further evidence of the growing pressure from sellers is that the holders of tokenized bitcoins on the Ethereum blockchain are increasingly converting them into natural form. Since mid-summer, there has been a trend exclusively towards an increase in the volume of tokenized bitcoins, but recently, their number began to decline for the first time..
“Let’s not forget that these bitcoins were originally tokenized at much lower levels. Taking profits seems like a prudent decision, ”said Denis Vinokurov, head of research at Bequant..
Alpha5 derivatives exchange founder Vishal Shah argues that buyers don’t see much difference when buying bitcoin as long as the price stays between $ 15,000 and $ 20,000. “Buyers don’t worry about the next 300 or 400 pips, even 1,000 pips. Only the trajectory matters, “he explained..
“A rejection at the $ 19,400 and $ 19,150 levels indicates the formation of a range with a lower boundary at $ 18,500. A breakthrough of $ 19,400 is equivalent to a rise to new highs. We will lose $ 18,500 and most likely we will go to test $ 16,000, ”says analyst Michael van de Popp.
Light at the end of the tunnel
Despite the confluence of these circumstances, a number of factors point to continued positive trends in the market. So, analysts of the Santiment platform say that against the background of a decrease in bitcoin to $ 18,750 this night, the outflow of funds from exchanges resumed. “When cryptocurrency coins move to offline wallets, it has historically been a sign of confidence for hodlers not planning to sell,” they write. This, however, does not guarantee that the situation will not change at any time..
The average daily trading volume of Bitcoin Trust Grayscale (GBTC) shares increased 165% in November from the previous month. The average in November was $ 254.41 million, behind only $ 422.95 million in December 2017. The volume of assets in the trust recently exceeded $ 10 billion, while at the beginning of the year it was $ 2 billion.
Bloomberg Crypto analysts in their latest monthly report write that the path of least resistance for bitcoin is still up, and expect the cryptocurrency to more than double in value in 2021.
“Macroeconomic and technical factors, as well as supply-demand ratios, indicate that the next resistance for Bitcoin is the $ 50,000 level. This implies a capitalization of $ 1 trillion, ”they say, adding that even in a negative scenario, traders are unlikely to expect a pullback below $ 10,000. – The $ 10,000 mark has changed to a critical support level after having resisted since 2017 “.
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