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Crypto Markets Continued To Sell-Off Over The Weekend - Market Dynamics Suggest The Pressure Is Likely More A Function Of Deleveraging Than Bearish Repositioning
Crypto Takeaway: Weekend weakness saw bitcoin (BTC) ultimately make lows in the range of USD 6,700 before rebounding. The decline saw BTC's 14-day RSI hit the 3rd lowest reading in 2-years.
We'd suggest there are several factors that point this to a deleveraging over a major spot liquidation or aggressive shorting.
1) Derivatives Continue to Dominate: As we'd previously pointed out, spot volumes in the last quarter have drastically underperformed derivative activity. The same was seen this weekend when BitMEX saw 5.34B in 24-hours activity (nearly twice the yearly average) while the most active crypto-fiat on/off-ramp Bitfinex (BFX) saw only 275M in volume or just over the 365-day average. With platforms such as BitMEX averaging 8x leverage per-position, derivatives activity almost certainly implies higher-leveraged trading.
2) No Evidence of Aggressive Shorting: According to datamish (chart), while BTC shorts have increased marginally during the sell-off, they have not kept pace with BTC longs initiated. Furthermore, the overnight rebound has seen shorts decrease notably while longs have remained relatively flat. Chart below plots BTC Longs / Shorts - Throughout the most recent sell-off BTC longs (green) have actually increased more than BTC shorts (red)...
3) Futures Prices Remain in Contango: According to data from skew.com the three most active BTC futures platforms are in contango. BitMEX's March 2020 contract, for example, is currently trading about USD 75 or 1.05% above its perpetual swap. Such dynamics have remained relatively static throughout the weakness and do not suggest the market is repositioning mid/long-term bearish.
Ultimately, in spite of the sell-off, trader positioning looks relatively unchanged and leans bullish. Assuming that maintains one would expect a more swift resolution to the weakness than if market dynamics had been turned on their head.