Bitcoin Short Worth $200M+ Claimed
On Sunday, a trader on Bitfinex claimed, not liquidated, 20,000 Bitcoin (BTC) worth of shorts — a position that was collateralized by over $200,000,000 worth of the cryptocurrency if unlevered. It is important to note that prior to the claim, there was a mass inflow of Bitcoin onto Bitfinex.
For those unaware of the complexities of Bitfinex’s long-short trading system, the “claim” means that the trader (assumed to be one entity due to the speed of the claim) used funds in his/her/their margin wallet to settle the short. Unlike liquidations, which happens when shorts or longs are forced to close their positions after a large move, all this activity occurs off the order book. As Bitfinex writes:
Claiming a position is essentially converting from a margin trade into an exchange trade; closing the position by buying it yourself and settling your funding costs to the lender. Because of this, there is no trading activity on the order book.
Due to this, the number of BTC shorts on Bitfinex fell to 9,686 BTC, which is a far cry from the 30,000 BTC that the figure was sitting at prior to this claim. What do analysts have to say of this movement in the market, which seemingly didn’t lead to a direct bout of buying or selling pressure?
The Bear Case
As a number of individuals have pointed out, there now remains an imbalance of long to shorts on Bitfinex. In fact, the long to short ratio now sits at 67% to 33%, meaning that buyers and outweighing sellers at current.
With many in the cryptocurrency trading community believing that they should go against the grain, selling instead of buying into a long-heavy market could occur, leading to downward price action. Interestingly, the value of BTC has fallen slightly since the claim, potentially corroborating the theory that traders are selling as a result of this shift on Bitfinex.
Another reason why this may be seen is bearish is that due to there being fewer shorts open, Bitcoin has less of a chance to experience a short squeeze. You see, when shorts are liquidated when Bitcoin shoots higher, they are forced to buy BTC on the spot market, resulting in cascading price action to the upside. With there being fewer shorts open now than before, the chances of a squeeze and the potential of said squeeze have dropped.
The Bull Case
On the other hand, there is a reason to believe that the 20,000 BTC claim may not be exactly bearish per se. Last time there was a large claim on Bitfinex, Bitcoin temporarily dipped. But then after that, BTC continued higher, returning to the pre-claim levels, to then set new year-to-date highs.
While analysts have been trying to interpret this statistic as a bullish or bearish indicator, one prominent researcher, Alex Krüger, explains that it may be unwise to rely on Bitfinex’s market data as a way to influence your trading. This is likely in reference to the fact that whales could spoof positions and that the crypto market can act irrationally, meaning not dependent on the number of longs or shorts open at any one time.
Photo by Dmitry Moraine on Unsplash