The price of Bitcoin experienced a decline of 11.5% between the 16th and the 18th of August, which culminated in the liquidation of $900 million worth of long positions and a two-month low. Many traders had anticipated a breakout in volatility before the crash, which they believed would have pushed the price higher; however, this was not the case. It is of the utmost importance to investigate whether or not professional traders made money from the price reduction in light of the enormous liquidations.

The general consensus among cryptocurrency traders is that market makers and whales have an advantage in foreseeing significant price changes, which gives them the upper hand over retail traders. This idea has some validity because it uses sophisticated quantitative trading software and servers placed in strategic locations. Professional traders are nonetheless susceptible to substantial financial losses when the market is unstable despite this.

More prominent and experienced traders might have their positions completely hedged. It is possible to determine whether recent movements signaling a widespread correction in the Bitcoin market by comparing these positions to those from earlier trading days.

BITFINEX AND OKX HAD RELATIVELY HIGH MARGIN LONGS

Margin trading allows investors to raise the size of their positions by borrowing stablecoins and using the money to buy more cryptocurrencies. Traders who borrow Bitcoin (BTC) use the coins as collateral for short parts, which are bets on falling prices.

The quick establishment of position contracts of 10,000 BTC or more by Bitfinex margin traders emphasizes the participation of whales and big arbitrage desks.

The Bitfinex margin long position on August 15 was 94,240 BTC, close to its highest level in four months, as shown in the chart below. This indicates that the rapid BTC price drop completely took professional traders off guard.

Unlike futures contracts, the equilibrium between margin longs and shorts is not intrinsically balanced. A high-margin lending ratio indicates a bullish market, whereas a low ratio indicates an adverse need.

As the number above shows, on August 16, the OKX BTC margin lending ratio was close to 35 times in favor of long positions. More importantly, this amount was the same as the average for the last seven days. This shows that whales and market makers kept their jobs on margin markets before the Bitcoin price dropped on August 16 and 17. This is true even if outside factors skewed the statistics earlier. This information supports the claim that skilled traders were unprepared for a price drop.

LONG-TO-SHORT FUTURES DATA SHOW TRADERS WERE UNREADY

The top traders' net long-to-short ratio removes external influences that may have only influenced the margin markets. By aggregating positions across perpetual and quarterly futures contracts, skilled traders can better understand whether they are bullish or bearish.

Occasionally, methodological differences between different exchanges require observers to watch developments rather than dwell on absolute values.

Before the Federal Open Market Committee minutes were released on August 16, notable BTC traders on Binance had a long-to-short ratio of 1.37, the same as the highest number seen in the four days before. On OKX, the same thing happened. The long-to-short indicator for Bitcoin's most important players reached 1.45 seconds before the BTC price decreased.

The data from Bitcoin futures reveals a need for preparation for minimizing exposure before August 16, whether in futures or margin markets. This is the case regardless of whether whales and market makers raised or lowered their positions after the crisis. Consequently, it is reasonable to suppose that experienced traders were taken aback by the price drop and did not make a profit as a result.

This post only provides elemental information and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent those of Cointelegraph.