Bitcoin (BTC) has not been able to close above $ 32,000 for the past 28 days, annoying bulls and pushing the fear and greed index down below 10. Even with a small increase on June 6, the technical weight of the Nasdaq stock market index has fallen by 24% so far this year.
Investors keeping a close eye on regulatory developments were potentially frightened after New York State announced its plans to control the cryptocurrency industry, including Bitcoin mining.
On June 2, New York Attorney General Letitia James issued a warning to investors against “risky investments in cryptocurrencies,” citing asset instability. According to the Cointelegraph, the Attorney General is convinced that cryptocurrency investments create “more pain than benefit” for investors.
The New York State Senate approved a mining ban (PoW) on June 2, and the proposed controversial bill aims to ban all new mining in the state for the next two years and is now heading for the governor’s desk.
Interestingly, since all of this is happening, Bitcoin derivatives traders have never been so bubbly, by any measure.
Margin trading is extremely bullish
Margin trading allows investors to take advantage of their position by borrowing stablecoins and using the profits to buy more cryptocurrency. When these smart traders borrow Bitcoin, they use the currency as collateral for shorts, which means they bet on a price reduction.
As a result, some analysts monitor the total lending amounts of Bitcoin and stablecoins to gain insight into whether investors are bullish or bearish. It is interesting to note that Bitfinex’s margin traders reached their highest indebtedness position (bull) on 6 June.
Bitfinex marginal traders are known for creating status agreements of 20,000 BTC or higher in a very short period of time, indicating the participation of whales and large type offices.
Note that the indicator (bull) increased enormously in mid-May and now stands at 90,090 BTC contracts, its highest listing. To understand how serious this movement was, one could compare it to the June-July 2021 previous historic high of 54,500 BTC contracts in the long run.
These traders broke through as their good positions peaked when Bitcoin prices bottomed out. In the coming months, they could sell these long (bull) contracts at a profit and reduce the number of open long positions (blue line).
Sometimes even whales are wrong
It can be assumed that these whales and type offices that trade in Bitfinex margin markets have better timing (or knowledge) and therefore it is sensible to follow their steps. However, if we analyze the same criteria for 2019 and 2020, a completely different scenario emerges.
There were three increases in the number of Bitfinex BTC margin extensions this time. The first case occurred between mid-November and mid-December 2019 after the indicator jumped from 25,200 BTC to 47,600 BTC longs. However, next month, the Bitcoin price did not exceed $ 8,300 and these traders closed their positions with a minimal profit.
The next wave of BTC loans occurred in early February 2020, but these traders came as a surprise after the Bitcoin price failed to break $ 10,500, forcing them to close their margins with significant losses.
Bitfinex BTC margin loans increased from 22,100 to 35,700 contracts in late July 2020. The movement coincided with a price increase to $ 47,000, so the first participants may have made some profit, but most investors split their margin without profit.
A smart margin might be right 75% of the time, but it’s sick
To put things in perspective, in the previous four cases where the BTC margin longs (bull) increased significantly, investors had one profitable trade, two that were largely neutral and one significant loss.
Some might say that the odds are still in favor of those who monitor the indicator, but one must remember that whales and type offices could easily collapse the market when they close their position. In such cases, those who follow the policy could arrive late in the party and lose.
Will the current increase in Bitfinex’s margin lead to high profits? It could depend on how traditional markets, mainly technology stocks, perform in the coming weeks.
The views and opinions expressed herein are theirs alone author and do not necessarily reflect the views of Cointelegraph. Every investment and business involves risk. You should do your own research when making a decision.
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