In the final 24-hours Bitcoin (BTC) toll dropped xiv% and tested the $32,000 support for the 5th time this year. Traders probably became even more worried every bit the price brutal to $31,050 merely at the time of writing the 4-hour chart suggests that the selling could be slowing downward.

Currently the shorter-term charts point that Bitcoin is still flirting with surly territory but a number of derivatives indicators and the elevation traders flow reflect neutral to bullish levels.

The final three times Bitcoin price barbarous below $32,000, an all-encompassing rally of up to thirty% followed. Information shows that the top traders at OKEx have been heavily buying the dip and the futures premium has held in an optimistic range.

BTC/USD iv-hour nautical chart. Source: TradingView

Even though traders are buying this current dip, the sharp $4,200 drib did inflict serious damage on some investors. The move down to $31,270 was followed by $460 million in liquidations at derivatives exchanges. Interestingly, this occurred just every bit the open up involvement on BTC futures reached a $thirteen.1 billion all-fourth dimension high.

Derivatives exchanges BTC futures open up involvement in USD. Source: Bybt.com

Today's toll action might seem worrisome, simply it pales in comparison to the Jan.10 24% crash that wiped out $1.v billion in long contracts.

Veteran traders are more accustomed to Bitcoin'due south 120% annualized volatility so a 12% price swing isn't particularly frightening. In fact, top traders and arbitrage deks remained relatively at-home during the dip.

To empathize whether or not Bitcoin is flashing bearish signals, traders tin can analyze top traders' long-to-short ratio at crypto exchages, the futures premium, and the options skew.

OKEx longs are two.v times larger than shorts

Exchange-provided data highlights traders' long-to-brusque net positioning. Past analyzing every client'due south position on the spot, perpetual and futures contracts, ane can obtain a clearer view of whether professional person traders are leaning bullish or bearish.

With this said, there are occasional discrepancies in the methodologies betwixt unlike exchanges, so viewers should monitor changes instead of absolute figures.

Top traders BTC long/short ratio. Source: Bybt.com

OKEx top traders have been calculation long positions since Jan. xix, driving the indicator from 0.96 (slightly net short) to a 2.49 ratio which favors longs. This is the highest level in 30 days and indicates an unusually farthermost imbalance.

On the other mitt, height traders at Huobi averaged a 0.91 long-to-brusk ratio over the concluding 30 days, favoring net shorts by 9%. On Jan. 20, they added internet short positions downward to a 0.86 ratio but repurchased them as BTC plunged during the early hours of Jan. 21. Thus, they are back to their monthly average of 0.91 long-to-brusque.

Lastly, Binance top traders averaged a 21% position that favored longs over the past 30 days. These traders seem to be getting liquidated as their internet longs were cutting to 1.02 from 1.xviii since belatedly January. 20. According to information from Coinalyze, 40% of total BTC long liquidations over the by 24 hours took place at Binance.

The futures premium spiked

Professional traders tend to dominate longer-term futures contracts with set expiry dates. By measuring the expense gap between futures and the regular spot market, a trader tin can approximate the level of bullishness in the market place.

The 3-month futures should usually trade with a 6% to 20% annualized premium (basis) versus regular spot exchanges. Whenever this indicator fades or turns negative, this is an alarming red flag. This situation is known as backwardation and indicates that the market place is turning bearish.

On the other hand, a sustainable ground above 20% signals excessive leverage from buyers, creating the potential for massive liquidations and eventual market crashes.

March 2021 BTC futures premium. Source: NYDIG Digital Assets Data

The higher up chart shows that the indicator ranged from 3.v% to five.5% since Dec. 13, translating to a moderately bullish nineteen% annualized ground. Meanwhile, the recent 6.5% pinnacle is equal to a 29% annualized premium, indicating excessive buyers leverage.

Although this is not the exact reason for today's correction, market makers and arbitrage desks know precisely how to play this situation. Pushing the price downwardly would certainly trigger a vast corporeality of liquidations and it should besides be noted that the futures open up interest had just reached an all-time high.

Currently, the BTC March contracts premium has stabilized virtually 2.5%, equivalent to a healthy 14% annualized footing.

20% crashes are the norm rather than the exception

Information technology'southward important to consider that Bitcoin holds a 60 day volatility of 4.ii%. Therefore, these large corrections should be expected.

Bitcoin faced a 20% crash and tested sub-$28,000 levels on January. four, and this was followed by a 27% intraday decline on Jan. 11. For those dauntless plenty to buy each of these dips, a recovery of up to 30% followed less than four days afterwards.

The views and opinions expressed hither are solely those of the autho r and practise not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a determination.