Bitfinex shorts crumble, bears capitulate after Bitcoin holds above $30K

Published at: June 28, 2021

On June 25, the amount of Bitcoin (BTC) margin shorts at Bitfinex increased by 22,000, equivalent to $726 million. At the time, Cointelegraph reported that there was a significant increase in Bitfinex's spot volume market share starting at 9 am UTC, matching the demand in the short margin.

Data confirms that one (or more) whales actively shorted the market, betting on a price decrease. The average price of the trade was around $33,000, so every $500 difference would result in an $11 million profit or loss when closing the short position.

In the cryptocurrency world, traders tend to imagine that for some entity or group to build such a sizable position, there must be some 'inside' knowledge to protect them. However, as previously shown by Cointelegraph, the Bitfinex margin shorts from early June were underwater by $65 million when Bitcoin reached $40,400 on June 16.

The important distinction between margin trading and futures (perpetual or quarterly) is that margin traders might use their own Bitcoin to close the trade. Thus, instead of buying it at the market, one needs only to inform the exchange that his spot holdings should be used to cover the short position.

The same feature is not available at futures markets because the contracts are synthetic. Depositing 10 Bitcoin at the exchange does not "free" a short seller from having to actually buy back the $360,000 worth of contracts.

Therefore, the short position could have been closed even if Bitfinex's spot volume doesn't completely account for the $900 million traded during that 8-hour period on June 25.

Once again, the margin short close took place as the spot volume on Bitfinex increased on June 27. Therefore, it is reasonable to assume that the entities closing the margin trade did not previously buy Bitcoin to cover it.

The average price as the 22,000 Bitcoin margin shorts was closed in the 20 hours starting on June 26 afternoon was $32,500. This data indicates a potential $11 million gross profit for the trade. However, it is worth noticing that on June 26, Bitcoin peaked at $32,700, causing those margin shorts to face a momentary $15.4 million loss.

These traders could have closed their position as Bitcoin tested the $31,500 support, but the price showed resilience, and this might have erased most of the trade's gains. Regardless of what caused the short trades to be closed, it displays weakness from bears or a considerable discomfort in holding bear positions below $35,000.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.