This week, the price of Bitcoin (BTC) reached a new 3-year record at $ 18,965, leading investors to believe that a new historical record above $ 20,000 is about to happen.
Although these are exciting times, the data shows that some professional investors are uneasy about the price at these levels, and the absence of retail FOMO (“fear of being left out”) requires a sharp retraction.
The data shows that Bitcoin has not fallen by more than 5% since September 4 and, in the last 77 days, the digital asset has gained 84%. The last time a similar price activity was observed was on November 25, 2019.
At that time, BTC made a 47% move from $ 6,900 to $ 10,150 in mid-February 2020, an 86-day run. However, it should not be concluded that a substantial correction necessarily follows every movement without a daily drop of 5%.
The evidence for such disparate expectations can be extracted from the base of futures contracts. Typically, the indicator should display an annualized premium of 3% to 10%.
Notice how traders were willing to pay an additional 20% annualized to load leveraged positions in February. This is quite unusual and a sign of extreme optimism.
This time, the basic indicator is gravitating close to 10%. Therefore, it is safe to infer that the chances of settling cascading sales orders are much lower at this point.
The lack of optimism is a sign of reduced conviction
Traders were surprised by this unusual trend, and the data confirms that there is a complete lack of belief. Even though the premium on BTC futures contracts is currently in a bullish zone, this validates the indiscriminate purchase.
In order to effectively assess whether traders have maintained long positions during this high, investors should monitor the buy and sell ratio of major traders on major cryptocurrency exchanges.
At Huobi, we can see that major traders entered a net short position when Bitcoin exceeded $ 16,000 on November 16. In November 19, some bearish bets appeared, as the BTC failed to break the $ 18,000 resistance. Once again, they were quick to close their losses and are currently stable. Therefore, it can be assumed that professional traders have been trying to guess a local top without much conviction.
Interestingly, Binance’s data shows the main traders applying a different strategy. Despite this, this still reflects a lack of conviction, as can be inferred below.
Binance’s main traders kept 10% of shares bought while Bitcoin rose above $ 16,000, but they struggled to buy after it shot up over $ 17,500.
While still maintaining a bullish position, they reduced it significantly, as the BTC struggled to break $ 18,000 on November 18.
It is important to note that exchanges gather data from major traders differently, as there are several ways to measure customers’ net exposure. Therefore, any comparison between different providers must be made in percentage changes instead of absolute numbers.
Ultimately, the data signals that there is some indecision or at least a lack of strong conviction among major traders.
When the market is sending mixed signals, there is nothing wrong with staying tense and not being in a position. At least, this is what the most experienced traders seem to be doing.
The views and opinions expressed here are exclusively those of author and do not necessarily reflect the views of the Cointelegraph. Every investment and trading movement involves risk. You must conduct your own research when making a decision.