Bitfinex Long/Short Ratio Indicates Upcoming Price Dump [Premium Analysis]

While large Bitcoin transfers are nothing out of the ordinary, recent movement has raised some concerns. In around 15 minutes, almost $10 billion in BTC has been moved between addresses. Large BTC transfers often precede price dumps, while the opposite is true with tether transfers. Cryptocurrency trader and analyst @filbfilb stated that the Bitcoin long orders have been increasing rapidly on the Bitfinex exchange, especially when considering their ratio relative to shorts. https://twitter.com/filbfilb/status/1202920101751730177 Additionally, he suggests that if he were looking to make a profit by shorting the market, hedging longs in one exchange in order to get higher prices for his short would be the way to go. Let’s take a look at the Bitcoin price and its relationship to the long and see if a dump is incoming.

Bitcoin vs Longs via Bitfinex

In order to determine if the price reacts in any way to a significant number of long orders, we will isolate instances in which the number of long orders is more than 35,000. The first time this occurred was in March 2018 when the number of longs reached 40,000. What followed was a price decrease from $8800 to $6500 in roughly two weeks. The same thing happened in July of the same year when the number of longs was around 37,000. Similarly, what followed was a drop from $8400 to $6100 in almost two weeks. In November 2018, the price began a downward move which led to a low of $3400. Therefore, the two price decreases were a part of a larger downtrend. Slightly after the low, the number of longs again increased to 35,000. The ensuing decrease was both gradual and small, with the price going from $4200 to $3600 in three months. Shortly after, in February, the number of longs increase to 37,500, and a very small decrease ensued for two months. In April of the same year, a rapid upward move began which culminated with a high of $13,764 reached in June 24. Therefore, unlike the first two instances, the two price decreases were part of a larger trend. The current number of long orders is 36,755. While a high number of long orders has lead to a price decrease each time, the magnitude of the decrease and the direction of the longer-term trend could not be determined by this one factor.

Long/Short Ratio

Another method we will use is analyzing the ratio between longs and shorts. The ratio has been above 4 on five occasions, without counting the current one. Every time, downward moves of different magnitudes have transpired. Additionally, the instances in which longs significantly outnumbered shorts were often combined with a very rapid upward price movement and followed by a significant price decrease. The ratio of longs/shorts agrees with the hypothesis laid out in the tweet. A high long/short ratio has always been followed by a price dump. Since the current ratio is 4.8, assuming the same price pattern will continue, we will soon see a price decrease. To conclude, while long orders in itself are not a sufficient predictor of price movement, the long/short ratio can be used to determine the direction of the price movement. If previous history is any indication, the price will soon initiate a downward move.

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Disclaimer: This article is not trading advice and should not be construed as such. Always consult a trained financial professional before investing in cryptocurrencies, as the market is particularly volatile.