This Deceptive Bitcoin Signal May Trigger a Brutal Price Crash

This bitcoin futures market signal looks bullish, but it may actually be the trigger for a massive BTC price crash.
  • The number of bitcoin traders going long on BTC is approaching an all-time high.
  • That sounds bullish, but it’s actually an extremely bearish signal.
  • Is the bitcoin price on the verge of another plunge?

Bitcoin longs are nearing record highs on margin trading platforms like Bitfinex. The last time the number of long positions to reached this high, a fourth-month bear market followed, suggesting that another price crash may be on the horizon.

The number of bitcoin long positions is growing at an alarming rate. | Source: TradingView

Why it’s bad when so many traders go long on bitcoin

Cactus, the cryptocurrency technical analyst who first noticed the snowballing number of BTC longs, told CCN.com in an interview that while this may seem like a bullish trend, it could translate to a steep pullback in the short-term.

Source: Twitter

On highly volatile days, the bitcoin price tends to move by more than 10% within a short period. Usually, such a move is triggered by a “squeeze” of long or short contracts, creating a cascade of liquidations.

The more long positions there are, the more the bitcoin price is exposed to a swift correction.

Cactus told CCN.com:

Longs for Bitcoin are currently breaking all time high, this level has not been tested in the past 10 months. While people may think this could be a bullish sign that there are a lot of buyers, this is normally not the case. Historically, the market reacts to this situation by liquidating longs before we ever seen our bullish move upwards, meaning we see a sharp sell-off in price action.

What happened to the bitcoin price the last time longs piled this high

In December 2018, the bitcoin price fell to around $4,000. At the time, longs started to spike as traders tried to protect lower support levels to prevent a further decline.

However, it ended up creating even more selling pressure in the market as it left BTC vulnerable to multiple long squeezes. Eventually, the BTC price dropped to as low as $3,100.

The bitcoin price chart with trend of longs | Source: TradingView via Tony Spilotro

It wasn’t until longs started to drop off and the market stabilized that bitcoin began to show signs of recovery.

Where does bitcoin go next?

Cryptocurrency traders like Josh Rager have emphasized that the short-term trend of bitcoin currently remains neutral.

In recent weeks, bitcoin has shown irregular price action, with large wicks to both the upside and downside in short and long time frames.

“Bitcoin is battling the POC at $7315 area and so far holding steady Below that we’d want to look at the low of the value area – $7100s (sweep of low $7080) All together – is this bullish or bearish – IMO, neither short term, it’s ranging and could likely be an accumulation area,” noted Rager in a recent tweet.

Whether the growing number of BTC long positions will add to the selling pressure in the bitcoin market remains unclear, but we’ll find out soon as BTC moves to test $7,100 as a support level.

Josiah Wilmoth edited this article for CCN.com. If you see a breach of our Code of Ethics or Rights and Duties of the Editor or find a factual, spelling, or grammar error, please contact us.

Last modified: June 14, 2020 9:53 AM UTC

Published:
December 11, 2019 10:05 PM UTC
More of: Bitcoin
Joseph Young @iamjosephyoung

Financial analyst based in Seoul, South Korea. Contributing regularly to CCN and Forbes. I have covered the stock market and bitcoin since 2013.