slatermaus

Leverage-driven ascending wedge

BITSTAMP:BTCUSD   Bitcoin / U.S. Dollar
There are a few things going on to take note of:

1. Leveraged longs in ratio to shortsellers is hanging around 23:1, and is otherwise enormously lopsided towards being overbought. (See the orange line)
2. As a result, leveraged interest rates are exceptionally high, all north of .1%, sometimes as high as .35%, per day
3. As we've seen in the last 2 weeks, more margin is required to pump up the price at every level.
4. Therefore, margin traders will hit or have hit a ceiling on how much they can borrow.
5. There are currently nearly 30,000 btc in leveraged positions.

I believe at this level, the prices are brittle because what we've had in the last 2-3 weeks is largely a result of leverage, and not real demand from cash positions.
This is not to say that retail and institutions couldn't catch up and perhaps meet it, but it seems unlikely in my view. That is not to say retail and institutional buys aren't going on currently, but there is a divergence in cash vs margin.

Going forward:
1. Just a fraction of these margin traders selling could send price tumbling
2. Yet they have already done this several times in the last 2 weeks, as it's very sophisticated set of pump and dumps.
3. That said, each pump and each dump has gotten a bit smaller, as can be seen in the ascending wedge .
4. There is a bearish divergence in the MACD on the H2 chart and very nearly one on the H4. Though when it comes to these pumps, it doesn't seem particularly relevant.

This chart has been marked as neutral since I do not short, I do not currently have a BTC position, and this is just my observation on price action. I would normally expect a correction to levels seen before this pump started, which is around $40k, but BTC is anything but predictable.
Comment: We saw a breakout of the ascending wedge, but now leveraged positions are reducing in scale. If this does indeed lead to a correction, I would think it's a very interesting phenomenon to take note off for future observations.
The trend would be this:
1. Leveraged positions force a breakout from a wedge
2. Momentum traders buy the breakout, eventually retail jumps in
3. Leveraged positions reduce in size, momentum traders cash out after hitting PT or SLs
4. Therefore initiating a correction.

While I'm overall bullish on bitcoin, (who isn't?), I think current price action could be a bull trap. Bitcoin is also known for producing -Hook after a high angle growth.

If not, then I suppose I'd have to rethink my position on the effect of these traders on prices. I'm not a professional, I'm a hobbyist, so I would never consider this the final word. Thank you.
Comment: Notes:
1. Bulltrap confirmed, trendline broken, a rarely-seen diamond top sealed the deal.
2. 200BTC (roughly $10.6 million) in leveraged longs have been liquidated in the last 24 hours as per datamish.
3. Long:short ratio is just under 20, over 20 doesn't seem to be happening now despite longs maxing out in the last 12 hours.
4. Lending rate for longs is still 6x what it is for shorts.
5. So not only does shorting have the momentum right now in the charts, it's much cheaper to short.
Downtrend confirmed in h1-h6 charts, if things stand as they are for the next 2 hours, downtrend confirmed on the h8. If it continues for the next 12 hours, confirmed on the h12. Daily trend, however, is not yet broken.
Comment: H8 downtrend confirmed,
H12, which ends in just over 7 hours, has the price hovering at the EMA13 and thus is not yet downtrending. But in 7 hours, it just might, considering the weight of the downtrend of the shorter timeframes.
Comment: Leveraged longs have crowded back in, with back over 29000 BTC on margin again.
If the downtrend continues, these new longs will also get liquidated, sending the price well below current levels.
An interesting thing to note is that lenders have sunk the interest rates for leverage by 80%, despite having virtually the same demand (if not more) than before.
Comment: Interest deep was anomalous, it is back up again, though I would expect it to go higher still.

Comments

Great Idea! thank you for insight!
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slatermaus dothepanic
@dothepanic, thank you, this is my first chart on here and I hope it helps someone.
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