Today, after Bitcoin (BTC) price hit a new all-time high of $ 44,900, shortly after Tesla announced a $ 1.5 billion investment. This event resulted in short positions worth $ 555 million being liquidated within two hours. Open positions on Bitcoin futures hit $ 13.7 billion, which is only 3% below its historic high.
These price movements dramatically increased the cost of moving long positions, mainly for those using perpetual futures. This indicator has set a yellow flag about how much leverage these investors have and what the potential impact they have on price.
BTC futures open interest rates in USD. Source: Bybt.com
As previously shown, total open interest in BTC futures just hit an all-time high of $ 15 billion.
Whenever unexpected positive news comes onto the market, it is natural for players to take extreme leverage positions. This applies to both short sellers, whose margins are falling due to losses, and long-term buyers, who tend to increase their positions.
Insufficient headroom shorts will be liquidated if their positions are forcibly terminated and their leverage decreases. On the flip side, the longs benefit, so increasing the position will not increase their leverage as much.
After the first pump, the funding rate is expected to increase and the fees paid by longs to keep their perpetual futures (inverse swaps) open will increase.
BTC Perpetual Futures 8-hour financing rate. Source: Bybt.com
As shown above, the 8 hour fee charged to offset any leverage imbalance between longs and shorts has just reached 0.25%. This rate is equal to 5.4% per week, which is very important to the owners.
It should be noted that the funding rate will adjust even if Bitcoin continues to appreciate in value, as seen on January 29th. Two main reasons have fueled this: leveraged buyers depositing more money and arbitrage desks shorting the perpetual futures while buying spot BTC.
A funding rate between 0.05% and 0.10% per 8 hours is standard and is expected during a bull market. This indicator would mean a monthly fee of 4.6% to 9.4% and would not be a problem for leveraged longs.
To understand how whales and arbitrage desks might have positioned themselves during this time, it is helpful to take a closer look at the long-short ratios of top traders on major exchanges.
OKEx dealers bought before the pump
Top Trader BTC Long / Short Ratio. Source: Bybt.com
Binance’s top traders held a net long position of 33% and preferred long positions prior to the February 8 rally. This is slightly above their 2 week average of 26%. As soon as the Tesla news hit the press, they added long positions and pushed the indicator down to 46%, which is its highest level in almost a month.
Top Huobi traders, however, were relatively unaffected by the news. Their net position was 0.74, meaning that 26% favored short positions prior to February 8th. Your current net short position of 28% remains in line with the previous 2 week average.
Eventually, OKEx’s top traders increased their net longs from February 6th to the early hours of February 8th, reaching a net long position of 14%. Somehow correctly predicted, these traders aggressively reduced net longs as BTC hit its all-time high.
The current high funding rate may be an inconvenience for longs, but there is currently no evidence of excessive leverage from buyers. At least for the big market makers and arbitrage desks that make up the top traders on most exchanges.
This suggests that Bitcoin has room for further price hikes.
The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph. Every investment and trading step is associated with risks. You should do your own research when making a decision.
