Margin Trading: Longs, Shorts and Open Interest on Bitfinex

9. Jan. 2020

What can margin traders' behavior - arguably, 'smarter' money-, tell us about current state of trends? Maybe some interesting things. Let's see:

First, Open Interest (bottom pane). It represents all longs and shorts open at any given time, in Bitfinex. Its all time high (ATH) happened during the very bottom of last bear market: December 14, 2018.

Shorts were in ecstasy, having piled up for an almost year-long period, starting January 19 (smaller dotted green line in Short's pane), and very close to their 5 times visited, previous ATH (thicker dotted red line, same pane).

Longs, also, were very close to their previous ATH (thicker dotted red line in Long's pane, starting March 25). After some disillusionment(?) (downtrend channel), margin bulls started accumulating a month before 6k level breakdown. It looks they never felt bothered with an almost 50% drop. It seems they liked it, in fact. Of course they did! Whales' plays.

Accumulation concluded February, 17 2019 (end of red dotted line in Long's pane), when prices started rising. Distribution instantly commenced as well. Something key, however, happened at the same time: the definitive breakdown from first overall open interest uptrend channel (see bottom pane again). More on this later on.

On the way to the new 13.8k lower high, old shorts helped fuel the rise initially. And new ones as well, once frustrated after 6k and 9k levels were breached. Between swings, longs also contributed again too. But, remember Open Interest? Kept falling all the way through, inside a new down channel which became clearly visible.

Open interest all time low (ATL) came 17 days after 13.8k high, on July 12, 2019.
It's worth noticing the huge short claim / settling transaction which took place on June 29, as well - presented, in this study, in a custom view of an enhanced vol. indicator. Probably not a coincidence, near last open Interest previous ATL, form December 30, 2017. Interesting, huh?

From then on, we've been witnessing a new bear market.
Noticeable aspects since then:

• Shorts remain inside their downward channel, and have not piled up during this fall, as happened during the previous one. At most, they moved almost sideways some times. Still, they just renewed their ATL (as of the moment of this writing).
  
• Longs, instead, behaved similarly to previous bear market - but less aggressively, until..
  
• Bulls jumped onboard margin longs in a way never seen before, starting November 21, 2019, bringing the ticker to a new ATH, and, as of December 1st, out of Open Interest's downward channel. What is it that they know? Wish I knew.
  
• But what we can see is that there was a clear breakout from a long-time rising triangle in margin longs. Shapes work here too, it seems.
  
• Another "coincidence": last recent Open Interest top happened at the same price level as the previous Open Interest ATH (April 10, 2018).
  

To conclude, what suppositions can we make with somewhat decent level of reason here? Maybe these:

• If Open Interest continues its path towards a new upward channel while price manages to break out from current downtrend as well, we can see a great new bull market take shape.
  
• Still, there are way less short positions open to fuel the uptrend now.
  
• There are lots of longs open. If bull rally fails, these whales (or could it be only one?) may not want or be able to hold, and trigger a massive sell-off. So, yes, we're standing over a huge crate of dynamite. So...
  

...trade wisely. Lose little. Stay in the game.

PhinkTrande

11. Feb. 2020

Anmerkung

Updated view.



Open Interest really broke out of downtrend channel, fuelled by strong longs -- and some shorts.

This pretty much applicable still:
* If Open Interest continues its path towards a new upward channel while price manages to break out from current downtrend as well, we can see a great new bull market take shape.
* Still, there are way less short positions open to fuel the uptrend now.
* There are lots of longs open. If bull rally fails, these whales (...) may not want or be able to hold, and trigger a massive sell-off. So, yes, we're standing over a huge crate of dynamite.

Cheers!