Pro traders are buying the dip as bears push the price of Bitcoin to $ 30K margin

In the last 24 hours, Bitcoin (BTC) price fell 14% and the support experienced $ 32,000 for the fifth time this year. Traders have probably become even more concerned as the price has dropped to $ 31,050 but at the time of writing the 4-hour chart it suggests that sales may be slowing.

The shorter-term charts currently indicate that Bitcoin is still flush with bearish territory but a number of derivatives indicators and the top traders’ flow reflect neutral to bullish levels.

The price of Bitcoin last three times fell below $ 32,000, followed by an extensive rally of up to 30%. Data shows that the best traders at OKEx have been buying the dip heavily and the futures premium has been held in an optimistic range.

BTC / USD 4 hour chart. Source: TradingView

While traders were buying this current discount, the sudden $ 4,200 drop did some serious damage to some investors. The move down to $ 31,270 was followed by $ 460 million in liquidations in derivatives exchanges. Interestingly, this happened just as open interest on the future of BTC always reached a maximum of $ 13.1 billion.

Derivatives exchange BTC futures with open interest in USD. Source: Bybt.com

Today’s price action may seem ridiculous, but it deviates compared to the Jan.10 crash of 24% that wiped out $ 1.5 billion in long contracts.

Veteran traders are more familiar with Bitcoin’s annual volatility of 120% so a 12% price swing isn’t particularly scary. In fact, the main merchants and arbitration decks stayed relatively calm during the dip.

To understand whether or not Bitcoin is flashing bearish signals, traders can analyze the long-to-short ratio of the major traders while shadowing crypto, the future premium, and the options skew.

OKEx lengths are 2.5 times larger than shorts

Data provided by an exchange highlights the long-to-short net position of traders. By analyzing each client’s position on the spot, flat and futures contracts, one can get a clearer view of whether professional traders are weighing bullish or bearish.

With that said, there are occasional inconsistencies in the methodology between different exchanges, so viewers should monitor changes instead of absolute figures.

BTC long / short ratio of top traders. Source: Bybt.com

Top OKEx traders have been adding long positions since January 19, driving the indicator from 0.96 (slightly net short) to a 2.49 nostalgic-favored ratio. This is the highest level in 30 days and indicates an unusually extreme imbalance.

On the other hand, the top traders in Huobi averaged a 0.91 long-to-short ratio over the past 30 days, favoring 9% net shorts. On January 20, they added net short positions down to a 0.86 ratio but repurchased them as BTC plummeted in the early hours of Jan. 21. Therefore, they are back to their monthly average of 0.91 long-to-short.

Finally, Binance’s top traders on average ranked 21% in favor of nostalgia over the past 30 days. These traders appear to be scrapping as their net lengths are cut to 1.02 from 1.18 since the end of January 20. According to data from Coinalyze, 40% of total BTC long liquidations occurred over the last 24 hours in Binance.

Spiked the future premium

Professional traders tend to dominate longer-term futures contracts with specific expiry dates. By measuring the cost gap between futures and the regular spot market, a trader can gauge the level of bullishness in the market.

The 3 month futures should normally trade with an annual premium (base) of 6% to 20% against regular spot exchanges. Whenever this indicator fades or turns negative, this is an alarming red flag. This situation is called a backlash and shows that the market is turning bearish.

On the other hand, a sustainable base above 20% signals excessive leverage by buyers, creating the potential for huge liquidations and eventual market crashes.

March 2021 BTC futures premium. Source: NYDIG Digital Asset Data

The chart above shows that the indicator has fluctuated from 3.5% to 5.5% since December 13, converting to a moderately bullish annual base of 19%. Meanwhile, the recent peak of 6.5% equals an annual premium of 29%, indicating excessive consumer leverage.

While this is not exactly the reason for today’s correction, market makers and arbitration desks know exactly how to play this position. Pushing the price down would certainly trigger a great deal of liquidation and it should also be noted that the open interest of the future has just reached record levels.

Currently, the March BTC contract premium has stabilized nearly 2.5%, which equates to a healthy annual base of 14%.

20% accidents are the norm rather than the exception

It is important to consider that Bitcoin has a 60 day volatility of 4.2%. Therefore, these major corrections should be expected.

Bitcoin faced a 20% crash and experienced sub-$ 28,000 levels on January 4, followed by an international decline of 27% on January 11. For those brave enough to buy all of these dips , a recovery of up to 30% following less than four days later.

The views and opinions expressed here are those of the author nor do they necessarily reflect Cointelegraph’s views. All investment and trading moves involve risk. You should carry out your own research when making a decision.