Bitcoin remains stuck in a rut, trading near $33,000 and trapped in a downtrend that appears to be getting worse by the day.
As the price declines, analysts have consulted a variety of technical and on-chain metrics to determine the reason for the decline, but none have pinpointed the exact cause.
One point of interest in the last week has been the sharp increase in short positions at Bitfinex.
Traders are exaggerating the significance of these Bitcoin (BTC) margin shorts, as if they are market predictors.
Nonetheless, as previously reported by Cointelegraph, analysts overlook the fact that Bitcoin margin longs are typically much larger.
As #Bitcoin is Bleeding slowly towards the range low (30-32K) we can see that Bitfinex Mega shorts are getting closed gradually
Still big shorts are open, but half of them are already closed
Keeping an eye on this cuz Finex whale was a key player in 19th of May crash $BTC pic.twitter.com/c4qeb6Nxe3
— Feras_Crypto (@FeraSY1) June 20, 2021
On June 18, long positions outnumbered short positions on Bitfinex by at least 22,800 BTC, but 87 percent of short positions were closed by June 22.
At the moment, margin longs exceed shorts by 43,850 BTC.
While those shorts are typically astute traders, it is improbable that they were aware in advance that Chinese banks would prohibit their customers from engaging in crypto trading or mining.
More importantly, these bearish positions were taken while MicroStrategy was purchasing $500 million in Bitcoin following the successful private placement of a senior secured note.
To make matters worse, Michael Saylor’s business intelligence firm announced plans to raise another $1 billion through the sale of stocks in order to purchase Bitcoin.
Consider how these valiant shorts fared.
On June 6, shorts increased in price from 1,380 to 6,700, averaging $36,150.
Three days later, when Bitcoin was trading at $37,050, another 12,180 short positions were added.
Finally, between June 14 and 15, short positions increased by 6,000 to a peak of 25,000, while the price of Bitcoin averaged $40,100.
By examining Bitcoin prices at the time of those short position increases, it is reasonable to assume that the 23,500 contract increase (green circles) occurred at an average price of $37,625.
Traders liquidated positions prior to BTC’s crash below $32,000
These short positions have been steadily closed over the last three days, despite the fact that Bitcoin had already fallen below $37,000.
However, by the time the price fell below $33,500, 17,000 short contracts had been closed.
As a result, it seems improbable that the average price was less than $34,500.
Nobody would complain about gaining 8% and profiting $73 million by shorting the market.
It is critical to note, however, that on June 16, when Bitcoin reached $40,400, these short positions were $65 million in the red.
This analysis demonstrates how even highly skilled traders can sink to great depths.
There is no way to determine whether this trade would have been profitable had China’s crackdown not exacerbated the Bitcoin price, or if MicroStrategy raised the $1 billion prior to the price drop.
If anyone still believes in market manipulation, there is solace in the knowledge that even professional traders can suffer catastrophic losses.
Unlike us mortals, whales, on the other hand, have deep pockets and the fortitude to withstand even the most intense thunderstorms.