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Bitcoin Longs as Predictor for BTCUSD Market Turns

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Bitfinex not only provides BTC pairs against other fiat currencies and cryptocurrencies, it also delivers two interesting charts: BTCUSD Longs and BTCUSD Shorts.

We talked about BTC shorts on July 1st, a hot topic at that time, a product of a huge spike that brought the number of shorts from around 30,000 down to less than 9,000. This time, there is no such amazing event, but nonetheless, we have found that BTCUSD longs can be a great indicator of sport market turns.

Chart 1- BTCUSD (Blue) Longs versus BTCUSD (yellow) – Percent

On this chart, we see a BTCUSD Longs graph compared to the evolution of the BTCUSD price. We can observe that there is a very high correspondence (correlation) between the ups on the BTCUSD Longs and the price of the bitcoin.

The chart also highlights a yellow area for the Longs between 25,000 and 30,000 positions that signal market tops (see the start of the pink areas). We can see that, once the number of long contracts moves to that yellow area, a consolidation phase on the Bitcoin price begins. Consolidation that usually ends in a sharp decline both in the Bitcoin price and the number of longs.

We see also that once the number of longs settles on a plateau at about 20,000 or lower, a new bullish leg begins until the number of Longs moves above 25,000.

Below, the chart is slightly modified to show the number of contracts instead of percents.

Chart 2 – Bitcoin Longs versus Bitcoin price – Levels

The Current Context

If our assumptions are correct, we are at the beginning of another bullish phase, since the current size of the long positions is 20,726. We can expect then, a continuation of the BTC appreciation until we see this figure move above 25,000.

But that does not mean we should close our long position just because it touched the 25,000 level since that number could reach 28,000 or even a bit more. That is because we expect more fresh fiat money entering this bull market. That means also, this overbought region must be reassessed from time to time to take into account fresh money flowing in.

What we should do once Longs reach that level is to be cautious and carefully observe the price action for signs of a reversal.

 

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