Bitcoin is in the news again, as analyst Ali_Charts has flagged an intriguing divergence in the Bitcoin market. Since August 1, Bitcoin has slipped about 3.57%, yet long positions on Bitfinex have surged by roughly 20%. The latest price of Bitcoin is around $113,700, a slight decline since its July highs.
The decline in price, while the level of bullish positions is increasing, is giving traders and strategists mixed opinions.
Divergence Between Bitcoin Price and Positioning
The growth of long positions is normally observed when the prices are going up and traders rush in with expectations of future gains.
The surge in longs on Bitfinex, which happens to be one of the largest digital asset exchanges in the world, as the underlying asset moves in an opposite direction, indicates that a sizeable community of market players is making preparations towards recovering losses.
This may be an indication that one feels the weakness is temporary and that support at the current levels will hold up well.
Alternatively, it can also indicate that leveraged buyers are trying to grab a bottom and are attempting to run more exposure, displaying optimism that there will be a turnaround.
Potential Market Effects
The position gives two scenarios. Should Bitcoin reach a point of stabilizing and finding traction to start recovering, the high volume in longs may prompt a short squeeze with additional liquidations becoming triggered as more players quickly look to cut losses before the momentum shifts back in their favor as well.
Such an interaction would magnify rallies in the short term and would attract more momentum traders.
On the other hand, in case the price is still going down, such newly acquired long positions become vulnerable. The correction may be worse due to forced liquidations, over-leveraging, and the crash.
