Bitcoin's big bankruptcy means that one person's pain is another person's pleasure - is it time to buy the dip?

Bitcoin’s big bankruptcy means that one person’s pain is another person’s pleasure – is it time to buy the dip? – Mail Bonus


Bitcoin (BTC) has failed to recover $ 24,000 in support since Celsius, a popular mortgage and lending platform, suspended withdrawals from its platform on June 13. A growing number of users believe that Celsius mismanaged its assets following the collapse of the Anchor Protocol on the Terra (LUNA; now LUNC) ecosystem, and rumors of its bankruptcy continue to circulate.

An even bigger issue arose on June 14 after the cryptocurrency company Three Arrows Capital (3AC) claimed to have lost $ 31.4 million by trading on Bitfinex. Furthermore, 3AC was a well-known investor in Terra, which suffered a 100% collapse at the end of May.

Unconfirmed reports that 3AC was facing hundreds of millions of bankruptcies from many places caused market turmoil in early June 15, causing Bitcoin to trade at $ 20,060, the lowest price since December 15, 2020.

Let’s look at current derivatives to understand whether the bearish trend on June 15 reflects the attitudes of major traders.

Margins declined after a brief rise in credit

Margin trading enables investors to borrow cryptocurrency and use their trading position to potentially increase returns. For example, you can buy cryptocurrencies by borrowing Tether (USDT) to expand your exposure.

On the other hand, Bitcoin borrowers can support the cryptocurrency if they bet on its price reduction, and unlike futures contracts, the balance between margins and short-term currencies is not always consistent. This is why analysts monitor credit markets to determine whether investors are bullish or bearish.

It is interesting to note that marginal traders raised their long-term (bull) debt on June 14 to its highest level in two months.

Bitfinex margin Bitcoin / USD longs / shorts ratio. Source: TradingView

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.

As the graph above indicates, even on June 14, the number of BTC / USD long-term margin agreements exceeded short-term contracts 49 times, 107,500 BTC. The benchmark for the last time this indicator was below 10 and supported longs was March 14th. The result benefited counter-traders at the time, as Bitcoin rose by 28% over the next two weeks.

Bitcoin futures data show that professional traders were declared bankrupt

The long to short net ratio of top traders excludes external effects that could have affected the margin instruments. By analyzing these local whale positions, perpetual contracts and futures contracts, you can better understand whether professional traders are bullish or bearish.

The major traders of the Bitcoin exchange long to short rate. Source: Coinglass

It is important to keep in mind the methodological discrepancy between different stock exchanges, so that universal numbers are less important. For example, while Huobi traders have kept their ratio relatively unchanged between June 13 and Ju15, Binance and OKX professionals reduced their loans.

This movement could mean liquidation, which means that the margin deposit was insufficient to cover their credit. In these cases, the stock exchange’s automatic debit mechanism is performed by selling the Bitcoin balance to reduce the risk. Either way, the ratio has a long-term short-term effect and indicates a less bullish net position.

Dissolution could involve buying opportunities

Data from derivatives markets, including margins and futures contracts, show that professionals certainly did not expect such a deep and continuous price correction.

Even though there has been a strong correlation with the stock market and the S&P 500 index has lost 21.6% so far, professional cryptocurrency traders did not expect Bitcoin to fall by an additional 37% in June.

While leveraging allows you to maximize profits, it can also force a relentless bankruptcy like recent events seen this week. Automated trading systems and DeFi systems sell investor positions at any price available when the mortgage is insufficient to meet the risk and this put a lot of pressure on the emerging markets.

These winding-up exchanges sometimes create the perfect access point for those who are knowledgeable and brave enough to counteract excessive corrections due to a lack of liquidity and a lack of offers on the trading platform. Whether this is the final bottom or not is something that will be impossible to determine until a few months after these fluctuations have passed.

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.