What can we learn from BTC long/short ratios ?

27 февр. 2019 г.

I always like to use different technical analysis to come up with new ways to analyze this market. Here, I used an EMA ribbon onto a ratio that links the amount of open longs to open shorts on Bitfinex.

Basically, BITFINEX:BTCUSDLONGS/BITFINEX:BTCUSDSHORTS outlines the instantaneous sentiment of the market: basically, it tells us what the market thinks about the next mid-term move. We can clearly see that market accurately predicted the November 18' capitulation, as the ratio was well beyond 0.7, and started pointing downwards as early as September.
Theses datas are quite fuzzy, however; one way to extract the general trend is to use an EMA ribbon: by using different EMAs with different time frames, it outlines the general trend and gives us a good indicator about how this long/short ratio will most likely move in the mid-term.
On top of that, EMA ribbons also points out something about market momentum and exhaustion: general direction can't just change instantaneously. It is a process that takes weeks, months, just as market sentiment can't just go from bearish to bullish without an intermediary phase of uncertainty, outlined by ribbon compression and expansion.

And as you can see, it is quite self-explanatory: just as September was a warning call about the upcoming 6k-to-3k downfall, the current state of the long/short ratio tells us that bear market is coming to an end. It's been three months already that BITFINEX:BTCUSDLONGS/BITFINEX:BTCUSDSHORTS is steadily recovering from the recent capitulation crash. We can see that bears are exhausted after their relentless push, and it's only a matter of weeks before euphoria takes on yet again.

News are quite good in that regard, too: Samsung confirmed about the S10's cryptowallets, following the HTC narrative;
Lightning Network is picking up, and more and more startups are building payments solutions on the Layer 2 solution, just like that Domino's Pizza broker. We even had the chance to see Fidelity picking up the Lightning Torch, along with other crypto-celebrities.
Numerous altcoins already started to recover, such as Ethereum, Litecoin, Tron, Ripple to give a few, and history has shown that crypto-bulls don't hedge their gains in Fiat: instead, when they take profits on their Altcoins investment, they just change them for Bitcoins, which serves as the main peg for many altcoins.

All that leads me to think that the recent retracement from 4.2k was just a way for the Crypto Market to take his breath, before the next bull-marathon.
Elliot-waves-wise, we would be at the beginning of a bullish multi-month wave 3 that would slingshot us to the 6-7k range. This is coherent with what this graph tells us: the Bears are less and less confident, and we might very well see 5k before the end of March, as shorts stop-losses start to trigger in a cascading-fashion, breaking through what they thought to be the "unbreakable bearish trend".

As always, trade safely, and don't invest more money than you can afford to loose.