This week, the price of Bitcoin (BTC) reached a new 3-year high at $ 18,965, prompting investors to expect a new all-time high above $ 20,000.
While these are exciting times, data shows that some professional traders feel anxious because the price at these levels and the absence of retail FOMO has many calling for a sharp pullback.
Data show that Bitcoin has not experienced a fall of more than 5% since September 4 and in the last 77 days the price of the digital asset has risen 84%. The last time similar price action was observed was on November 25, 2019.
Back then, BTC made a 47% move from $ 6,900 to $ 10,150 in mid-February 2020, a sequence of 86 days. However, we should not be too quick to say that a substantial correction occurs after a move without a daily drop of 5%.
Evidence of these disparate expectations can be drawn from the basis of futures contracts. Normally, the indicator should show an annualized premium of 3% to 10%.
See how traders were willing to pay an additional 20% annualized to maintain their leveraged positions in February. This is very unusual and is a sign of extreme optimism.
In this opportunity, the baseline indicator has been hovering about 10%. Therefore, it is safe to deduce that the chances of seeing sales orders being cascaded are much lower this time.
Lack of optimism is a sign of lower conviction
Traders have been surprised by this unusual trend, and data confirm that there is a total lack of conviction. Even though the BTC futures contracts premium is currently in a bullish zone, that validates buying them indiscriminately.
To effectively measure whether professionals have been long throughout this rally, investors need to be on the lookout for long / short ratio of professional traders on major cryptocurrency exchanges.
At Huobi we can see that professional traders entered a net short position when Bitcoin surpassed $ 16,000 on November 16. On November 19, some bearish bets appeared as BTC failed to break above the $ 18,000 resistance. Once again they were quick to close their losses and are currently flat. Therefore, we can say that professional traders have tried to guess the local high without much conviction.
Curiously, Binance data shows professional traders applying a different strategy. Despite this, the lack of conviction can still be seen, as can be inferred below.
Binance professional traders held a 10% net long position while Bitcoin climbed above $ 16,000, but then they were quick to buy after the price soared above $ 17,500.
While they still held a bullish position, They lowered it significantly as BTC struggled to break above $ 18,000 on November 18.
It is worth noting that exchanges collect data from professional traders in different ways, as there are several ways to measure the net exposure of their clients. Therefore, any comparison between different providers should be made based on percentage changes rather than absolute numbers.
As a last resort, Data indicates that there is some indecision or at least lack of conviction among professional traders.
When the market shows mixed signals, there is nothing wrong with standing still and not being in one position. At least, this is what the smartest traders seem to be doing.
The views and opinions expressed here are solely those of the autor and do not necessarily reflect the views of Cointelegraph. Every investment and business move involves risks, you must do your own research when making a decision.