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.
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.
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.
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.
It wasn’t until longs started to drop off and the market stabilized that bitcoin began to show signs of recovery.
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.
Last modified: June 14, 2020 9:53 AM UTC