The price of Bitcoin (BTC) slightly exceeded $9,900 on BitMEX, rising almost 9% in less than 48 hours since May 16. Despite the impressive recovery, CoinMarketCap’s main digital asset faces the risk of a significant short-term upward contraction.
According to Coinmarketcap, Bitcoin’s market capitalization is currently USD 179,479,194,100.
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Three factors suggest that the price of Bitcoin may be corrected after its recent rise from $9,100 to $9,900: an overwhelmingly large number of long positions rather than short ones, increased financing, and the possible formation of three lower highs.
Bitcoin long positions overwhelmingly outnumber short positions
Through Bitfinex, BitMEX and Binance Futures, 77.51% of traders hold long positions on average.
In total, on the three futures exchanges alone, there are $763 million in long positions, while there are only $221 million in short positions.
If the price of Bitcoin is rising without facing significant resistance, a high number of long contracts can be considered a factor of optimism. It suggests that most of the market expects the price of Bitcoin to increase in the short term.
For example, when the price of Crypto Genius / Bitcoin Method / Bitcoin Compass / Bitcoin Trader / Bitcoin Profit rose from $8,500 to $10,085 in a four-day span in the first week of May, the market was mostly in long positions.
The difference between early May and the current price trend is that almost 80% of traders in the entire Bitcoin futures market are on long BTC positions while the cryptomone is testing the area of resistance from $9,900 to $10,000 that it could not overcome during the last two weeks.
The price of Bitcoin is likely to be affected as the U.S. injects billions into the economy
Bitcoin funding, long to short contract ratio, and open interest. Source: CryptoISO
The increase in the financing rate coincides with the large long-term contracts
In the Bitcoin futures market, traders typically trade a perpetual contract that has no expiration date. Unlike conventional futures contracts, Bitcoin traders don’t have to risk being forced out of their position at any given time.
To provide some balance, futures exchanges use a mechanism called funding. If the market has more long contracts open, then traders who are making long positions with Bitcoin have to pay compensation to traders who are making short positions with BTC. This keeps the market balanced and prevents a prolonged downward trend or upward movement.
At BitMEX, the funding rate of your Bitcoin perpetual futures contract is around 0.05%. If a trader has a long position of USD 100,000 open, he will have to pay USD 150 per day in compensation just to keep the position open.
A high financing rate is a negative factor when the Bitcoin price starts to fall. When the Bitcoin price drops, traders no longer have the incentive to keep their positions open and compensate contract holders for short positions at the same time.