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This week the price of Bitcoin (BTC) has risen to a new high of 3 years at $ 18,965, leading investors to believe that a new record high above $ 20,000 is on the cards.
While these are exciting times, the data shows that some professional investors are feeling anxious about the price at these levels and the absence of retail FOMO calls for a strong pullback.
Data shows that Bitcoin has not seen a decline of more than 5% since September 4, and the digital asset has gained 84% over the past 77 days. The last time a similar price action was observed was on November 25, 2019.
At that time, BTC made a 47% move from $ 6,900 to $ 10,150 by mid-February 2020, an 86-day sequence. However, one should not jump to the conclusion that a substantial correction necessarily follows every move without a daily 5% drop.
Evidence of such disparate expectations can be extracted from the basis of futures contracts. Typically, the indicator should display an annualized premium of 3% to 10%.
Take note of how traders were willing to pay an additional 20% annualized to hold leveraged positions in February. This is quite unusual and a sign of extreme optimism.
This time around, the base indicator gravitated to around 10%. Therefore, it is safe to assume that the chances of cascading sales orders are much lower this time.
Lack of optimism is a sign of reduced conviction
Traders have been baffled by this unusual trend and the data confirms that there is a total lack of conviction. Even though the premium of BTC futures contracts is currently in a bullish zone, this validates indiscriminate buying.
To effectively assess whether professionals have held long positions during this rally, investors should monitor the long-to-short ratio of top traders in major cryptocurrency exchanges.
In Huobi we can see that the best traders have entered a net short position as Bitcoin topped $ 16,000 on November 16th. On November 19th, some bearish bets appeared as BTC failed to break out of the $ 18,000 resistance. Again, they were quick to close their losses and are currently unchanged. Therefore, it can be assumed that professional traders have tried to guess a local top without much conviction.
Interestingly, Binance data shows top traders apply a different strategy. Despite this, it still reflects a lack of conviction, as can be inferred below.
Binance’s top traders held a 10% net long position as Bitcoin made over $ 16,000, but then rushed to buy after it broke over $ 17,500.
While maintaining a bullish stance, they reduced it significantly as BTC struggled to break out of $ 18,000 on November 18th.
It is worth noting that exchanges collect data from top traders differently, as there are several ways to measure clients’ net exposure. Therefore, any comparison between different suppliers should be made on percentage changes rather than absolute numbers.
Ultimately, the data signals that there is some indecision or at least a lack of strong conviction among top traders.
When the market sends mixed signals, there is nothing wrong with standing still and not being in a position. At least, that’s what experienced traders seem to be doing.
The views and opinions expressed herein are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your research when making a decision.
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