Did Pro Traders Benefit from Bitcoin Price Drop to Two-Month Low?

The value of Bitcoin dropped by 11.5% from Aug. 16 to Aug. 18, resulting in $900 million worth of long positions being liquidated and causing the price to hit a two-month low. Before the decline, many traders expected volatility to push the price up, but that was not the case. With the huge liquidations, it’s essential to consider if professional traders profited from the price crash.

Cryptocurrency traders often believe that whales and market makers have an edge in forecasting significant price changes, giving them an advantage over retail traders. This is somewhat true since advanced quantitative trading software and strategically placed servers are involved. However, this doesn’t make professional traders invulnerable to huge financial losses when the market is turbulent.

For larger and professional traders, most of their positions may be completely hedged. Comparing these stances with previous trading days allows us to estimate if recent movements anticipated a broad correction in the crypto market.

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Margin longs at Bitfinex and OKX were relatively high

Traders who take part in margin trading can leverage their positions by borrowing stablecoins and using the funds to acquire more cryptocurrency. On the other hand, those who borrow Bitcoin (BTC) use it as collateral for short positions, indicating a bet on a bearish crypto market.

It is well known that Bitfinex margin traders often set up contracts of 10,000 BTC or higher, hinting at the participation of whales and major arbitrage desks. The chart below suggests that the Bitfinex margin long position on Aug. 15 was 94,240 BTC, which is close to the highest point over the past four months. This indicates that professional traders were not expecting the sudden BTC price drop.

Unlike futures contracts, the ratio between margin longs and shorts is not necessarily balanced. A high margin lending ratio implies a bullish market, whereas a low ratio implies a bearish sentiment.

The chart above shows the OKX BTC margin lending ratio, which was around 35 times in favor of long positions on Aug. 16. Furthermore, this figure was in line with the seven-day average. This suggests that even if the metric had been affected by external factors, whales and market makers were still holding their positions on margin markets prior to the Bitcoin price crash on Aug. 16 and Aug. 17. This data supports the idea that professional traders were not ready for a decrease in price.

Futures long-to-short data proves traders were unprepared

Data from BTC futures reveals that professional traders were not prepared for the bearish crypto market despite consolidating their positions across perpetual and quarterly futures contracts, which offered a clearer insight into whether they had a bullish or bearish stance.

However, slight discrepancies among different exchanges should be taken into account when interpreting the figures. For example, before the release of the Federal Open Market Committee minutes on Aug. 16, Binance traders had a long-to-short ratio of 1.37, which was the highest in the past four days. Similarly, the long-to-short indicator for Bitcoin’s leading traders on OKX was 1.45 moments before the BTC price correction occurred.

It is difficult to determine whether whales and market makers increased or decreased their positions after the crash, but the data from BTC futures suggests that professional traders were taken by surprise and did not benefit from the crypto bear market.