Why did the majority of Bitcoin short positions at Bitfinex close before the most severe section of the correction?
Bitcoin still sticks in limbo, trading near $33,000 and stuck in a downturn which seemed to be getting worse by the day.
Analysts have used a variety of technical and on-chain measures to try to figure out why the price is falling, but none of them have been able to pinpoint the actual cause.
One area of interest has been the sharp rise in short positions at Bitfinex in the past week. Traders are placing exaggerated importance on these Bitcoin (BTC) margin shorts as if they are predictors of the current market crash.
Still, as Cointelegraph previously reported, analysts forget that Bitcoin margin longs are usually much larger.
As #Bitcoin is Bleeding slowly towards the range low (30-32K) we can see that Bitfinex Mega shorts are getting closed gradually
Still big shorts are open, but half of them are already closed
Keeping an eye on this cuz Finex whale was a key player in 19th of May crash$BTC pic.twitter.com/c4qeb6Nxe3
— Feras_Crypto (@FeraSY1) June 20, 2021
Longs dominated shorts on Bitfinex by at least 22,800 BTC on June 18, although 87 percent of short positions were liquidated by June 22. Margin longs currently stand at 43,850 BTC, which is 43,850 BTC greater than the amount clamped.
While short sellers are usually astute investors, it’s unlikely that they were aware that Chinese banks would prohibit their customers from engaging in crypto trading or mining.
More crucially, these negative bets were established as MicroStrategy purchased $500 million in Bitcoin following a successful senior secured note private issue.
To make matters worse, Michael Saylor’s business intelligence company revealed plans to raise $1 billion more by selling stocks in order to purchase BTC.
Here’s a rundown of how the shots turned out.
Shorts surged from 1,380 to 6,700 on June 6, with an average price of $36,150. When BTC was valued at $37,050 three days later, another 12,180 shorts were added.
Ultimately, on June 14 and 15, shorts rose 6,000 points to a 25,000-point high, with Bitcoin averaging $40,100.
It’s safe to conclude that the 23,500 contract spike (green circles) had an average price of $37,625, relying on Bitcoin prices at the time those short position additions occurred.
After BTC plummeted to $32,000, traders closed their positions……
When BTC was already trading below $37,000, these short trades were systematically closed during the previous three days.
By the time the price fell below $33,500, however, 17,000 short contracts were already closed. As a result, it’s implausible that the average price is far less than $34,500.
No one could grumble about making a $73 million profit by shorting the market and gaining 8%.
Nevertheless, it’s worth mentioning that on June 16, when BTC hit $40,400, these shorts were $65 million in the red. This investigation demonstrates how even the most experienced traders can plunge deep underwater.
It’s impossible to say if this deal would have been lucrative if the Chinese crackdown hadn’t exacerbated Bitcoin’s price, or if MicroStrategy had raised the $1 billion before the price decrease.
If anyone out there believes in price gouging, it’s reassuring to know that even professional investors may lose a lot of money. Whales, on the other hand, have strong elements and the patience to survive even the most intense thunderstorms, unlike us mere mortals.
The author’s thoughts and opinions are purely his or her own and do not necessarily reflect those of Coinscreed. Every investing and trading decision entails some level of risk. When making decisions, you should do your own research.
