Aug 19, 2023

Did Pro Traders Benefit from Bitcoin Price Dropping to a Two-Month Low?

The recent crypto crash saw the price of Bitcoin plummet by 11.5% from Aug. 16 to Aug. 18, resulting in $900 million worth of long positions being liquidated and causing the price to hit a two-month low. This led to many speculating that a breakout in volatility could have pushed the price up, but that…

Recent Crypto Crash Brings Bitcoin Price to Two-Month Low; Did Pro Traders Benefit?
Bitcoin price drops to a two-month low — Did pro traders benefit?

The recent crypto crash saw the price of Bitcoin plummet by 11.5% from Aug. 16 to Aug. 18, resulting in $900 million worth of long positions being liquidated and causing the price to hit a two-month low. This led to many speculating that a breakout in volatility could have pushed the price up, but that was obviously not the case. With the substantial liquidations, it’s important to address whether professional traders gained from the price crash.

It is often believed that whales and market makers have an advantage in predicting significant price shifts and that this allows them to gain the upper hand over retail traders. This is partially true, as advanced quantitative trading software and strategically positioned servers come into play. However, this does not mean that professional traders are immune to substantial financial losses when the crypto market gets shaky.

For larger-sized and professional traders, a majority of their positions may be fully hedged. Comparing these positions with previous trading days can provide an indication of whether recent movements anticipated a widespread correction in the crypto market, such as the one seen with open.ai, crypto.com coins, and top crypto sites.

Margin longs at Bitfinex and OKX were relatively high

Traders who engage in margin trading can make use of stablecoins to increase the size of their positions, or alternatively, borrow Bitcoin (BTC) to open short positions, thereby betting on a decrease in value.

Bitfinex traders are known for their large-scale contracts, and on Aug. 15, the platform’s margin long position stood at 94,240 BTC, close to its highest point in four months. This indicates that experienced traders were taken by surprise by the sudden crypto crash.

The chart below displays the OKX BTC margin lending ratio, which was 35 times in favor of long positions on Aug. 16. This figure was in line with the seven-day average, suggesting that whales and market makers maintained their margin positions prior to the Bitcoin price dip on Aug. 16 and Aug. 17, which implies that professional traders were not expecting a decline.

Data from long-to-short futures reveals traders weren’t ready for the crypto crash

Analyzing the long-to-short ratio of the leading crypto traders on different exchanges, excluding any external factors, provides a better understanding of whether the professional traders are leaning towards a bullish or bearish outlook. However, as there can be slight differences in the methodology used by different exchanges, it’s best to focus on the changes rather than the absolute values.

Before the Federal Reserve’s Federal Open Market Committee minutes were released on Aug. 16, the long-to-short ratio of prominent traders on Binance had reached 1.37, which was the highest level in the past four days. A similar pattern was observed on OKX, where the long-to-short indicator for Bitcoin’s leading traders was 1.45, just before the crypto crash occurred.

The data from futures markets further confirms that professional traders were not prepared for the crypto crash, regardless of whether they increased or decreased their positions after the crash started. This suggests that the traders were taken by surprise and did not benefit from the price drop.

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