Bitcoin (BTC) derivatives traders on the Chicago Mercantile Exchange (CME) missed out on incredible gains when BTC’s spot price broke $ 55,000 this week.
According to data shared by Ecoinometrics, private investors reduced their long exposure to the Bitcoin futures and options markets in late September. The number of open short positions also increased, suggesting that derivatives traders were expecting Bitcoin prices to decline, as shown in the chart below.
CME Bitcoin Derivatives – Retailers. Source: CFTC report “Commitments of Traders”, Ecoinometrics
The data was taken on September 28, when the BTC price on Coinbase fell below $ 41,000 – a decrease of nearly 23% from its previous monthly high of $ 52,950. The decline occurred after China’s decision to ban all types of crypto transactions.
“Most likely, this slump was due to a mix of traders not rolling their long positions to the October contract and a full liquidation when BTC looked like it was going to drop below $ 40,000 last week,” said Nick, analyst at Ecoinometrics.
“Regardless, the overall picture is that futures traders lack conviction.”
“This is paper hands 101,” noted the analyst.
Institutional investors in the CME bitcoin futures market also followed retail sentiment as they reduced their long exposure to the market. On the other hand, their short positions increased.
CME Bitcoin Derivatives – Smart Money. Source: CFTC report “Commitments of Traders”, Ecoinometrics
With CME options traders convinced that Bitcoin price was going to go down, it turned out that the number of puts – an implicitly bearish bet on Bitcoin price – was almost twice the number of calls or bets on potential ones Bitcoin Prize Gains.
CME Bitcoin Options – Puts vs. Calls Open Interest. Source: ecoinometry
The traders’ position distribution made $ 40,000 the most desirable exercise price target.
On the flip side, some options traders are betting that the spot bitcoin price would hit $ 60,000 by the end of October. In addition, analyst Crypto Hedger highlighted that Bitcoin options expiring on Nov. 26 show that bulls’ sentiment is skewed towards the $ 80,000 strike target.
Buy / sell volume in the last 24 hours for the Bitcoin options contract dated November 26th. Source: Laevitas, Crypto Hedger
“At this current rate of growth, Bitcoin has formed very strong support at the $ 50,000 price point, and short-term traders may also need to watch out for the important resistance level around $ 56,000,” said Konstantin Anissimov, Executive Director of CEX.IO. Add:
“A break below or above these levels could trigger another catastrophic price reversal or a massive run towards $ 60,000 in the fourth quarter.”
Bitcoin supply bottlenecks in the game
On-chain data shared by Ecoinometrics also showed higher levels of Bitcoin withdrawals from all crypto exchanges.
In detail, Bitcoin’s 30-day net foreign exchange flow has increased since July 2020, as shown in the color-coded graph below, with blue and red indicating extreme outflow and inflow, respectively.
Bitcoin Rolling Net Exchange Flow. Source: Coinmetrics
Ecoinometrics found that the amount of Bitcoin currently leaving the exchanges is higher than it was in the previous four-year halving cycles.
Bitcoin Rolling Net Exchange inflow (second halving vs. third halving). Source: Coinmetrics
In the meantime, traders see the decline in Bitcoin supply on the stock exchanges with increasing “holding” activity as a further catalyst for a liquidity crisis and further price increases.
Related: Bitcoin’s “Heavy Breakout” fractal suggests that BTC price may hit $ 250,000 to $ 350,000 in 2021
“Back then there were actually periods of net outflows, but in terms of size they look a lot less dramatic than what we have now,” stressed Ecoinometrics, adding:
“This is another sign that we are on the way to a liquidity crisis that could drive the value of Bitcoin much higher than it is now.”
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