$BTCUSD SOPR, BFX Longs and Shorts, Greed, Liquidations.

By dreamalittle

Updated

This is one of the multi-chart evolving dashboards I use daily for crypto trading. This dashboard attempts to distill a broad scope of data and sentiment into glance value charts. The goal with such dashboards is to seek to stack probabilities to be on the right side of the percentages in every trade.

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The top panel chart shows the SOPR (Spent Output Profit Ratio, (grey line, using the symbol ) overlay vs (Binance, in blue). The SOPR is a very simple indicator. It is the spent outputs expressed as a ratio and shown as an oscillator on the chart. The Bitcoin SOPR is the realised dollar value divided by the dollar value at creation of the output. Or simply: price sold divided by price paid.

SOPR showing under value 1 means that the on chain data has recorded a net realised loss for "spent" Bitcoin. SOPR showing over value 1 means net profit. Renato Shirakashi appears to be the inventor of SOPR for BTC, and he writes about SOPR: "In this analysis two important psychological turning points that significantly change the supply of bitcoin are going to be described by introducing a new oscillating indicator that signals when these major supply changes occur, using blockchain data." I interpret this reference to the psychology of "weak hands" getting flushed out of the market by selling at a loss as shown when SOPR sits below 1 for extended periods of time (bear), and when all the weak hands have left the market, we find a bottom.

Because I am an impatient learner, I needed further examples to understand fully. If someone sells you 1 Bitcoin at $50,000USD, that transaction is recorded on the blockchain. If you then sell it for $25,000USD, that is now a spent output which is obviously a negative 0.5 ratio, and would contribute to a SOPR lower than the value 1. Interestingly the SOPR tends to be very close to the value 1 nearly always. Which means that the aggregated data of all spent outputs is nowhere near as extreme as the example I gave (although I'm sure there are plenty of retail traders who bought the high and sold the bottom at a 50% loss).

If we rewind to extended periods of low points in the SOPR ratio, extended negative ratio periods coincide with low points. In the past 5 years the lowest ratio was around 0.88, which was December 2018, when the price of Bitcoin was heading lower than USD. That particularly brutal bear market lasted 18 months and you can see that the SOPR was below value 1 for nearly the entire time, indicating that there was a long tail of weak hands realising losses the entire time.

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Also present on the top chart is a brilliant little free indicator called Liq.Levels, wtf is all I can say, this a masterpiece of long/short liquidation data based on market maker behaviour in this case Binance's perpetual BTC/USDT leveraged futures (one of the most active retail leverage platforms). On this layout I have hidden all but the 25x liquidation points both short and long as it captures the widest spread and for the simplest visual as this is a glance-dashboard, on a single panel layout you can view the 50x and 100x which are tighter spreads. Liq.Levels also filters for a minimum of one million USD, so this is real value the market makers are getting out of bed for, essentially these levels are where the market maker really wants to push the price to. If you're new to leverage (don't do it! just buy at spot!), the reason they do this is to hunt the longs and the shorts and cause maximum liquidations (are you still trading with leverage?!).

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The second panel is the famous Bitfinex Longs (green) and Shorts (red). You can see currently the longs, since around the $39000 level went parabolic. The shorts are just tiny in comparison. The data from Bitfinex seems less erratic than those from other exchanges, so if you find looking at longs and shorts ratios useful, I'd suggest also looking at other websites to see the other major exchange long and short activity, liquidations, and ratios.

This info is used to monitor large moves by leveraged traders. While Bitfinex is not the best measure here (ideally you would want all major exchanges aggregated longs vs shorts, but I have not found such indicators on TV, only Bitfinex), you can check the data by comparing it to another exchange, for example Binance you can see that parabolic move the Longs made from the 11th of July to around the 14th of July (while the BTC price fell off a cliff from 30k to 20k), where the ratio of Longs vs Shorts on Binance also skewed heavily to the Long side.

This is another way to stack a probability. As the Longs level off and get flushed out (usually by mass liquidation!), this is another variable to find support or resistance. For example you can see the levelling off around 12 May 2022, Bitcoin's price found a short term bottom at 29k. Similarly and most recently you can see as the Longs levelled off from a hectic run up in the mid June 2022 selloff, the price found a short term bottom around 20k. You could say that recently or commonly this is a contrarian indicator, assuming that smart money is seeking to liquidate the maximum possible leveraged positions, so we can assume that generally these leveraged retail traders will largely make incorrect bets most of the time, hence historically as soon as Shorts leave the market, the price spikes up, and vice versa. So, another thing to watch.

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Next we have a Crypto Fear & Greed Index, which as you can see nearly always oscillates in a tight rhythm with Bitcoin's price action. Above 75 (green dotted line) is extreme greed, below 25 (red dotted line) extreme fear. There are quite a few websites that attempt to measure crypto Fear & Greed, and even a variety of different indicators on TradingView, but this was the clearest visually I could find here. The inputs on this version according to the coder are stable coin flows (flight to safety), coin momentum (top 18 coin price relative to 30 day averages), and top 18 coin price high over the previous 90 days. So, it's interesting that despite this being at face value a rather complicated set of data with many inputs, that it just looks like a carbon copy of the Bitcoin chart. Bitcoin has a gravity that is inescapable for all things crypto right now.

The difference between looking at this indicator and simply looking at Bitcoin's chart is that it flattens out the action and has a set floor and a ceiling. You can see historically that the best buy times were when fear was at its "height" (where the yellow line is at its lowest). Another way to stack probabilities. At time of writing, is this a great time to buy? Fear appears to be leaving the market, we haven't had a commensurate price move up, so I'd be cautious. Like all these indicators, you can just overlay Bitcoin's price line and backtest the correlation in a few seconds. Buying when fear is at a maximum is usually easier said than done, though!

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Lastly we have Liquidations by Volume, as per the coder this "shows actual liquidations on a per-candle basis by using the difference in volume between spot and futures markets." Blue line is futures volumes, yellow are spot volumes. The code for this indicator shows that it is the same BTCUSDT Perpetual Future's contract from Binance that we have in the Liq.Levels indicator, perfect.

Worth noting is that the community of coders at TradingView is a trader's dream. These sorts of customisable dashboards you can build are high value. Having worked for the largest international institutions I find many of these indicators are institutional grade and they have just a few hundred users sometimes, pretty crazy how early in the adoption curve we are with this. If you haven't experienced the "other side" of trading, compared to regular equities forex futures etc the TradingView tools and the crypto data and exchanges are just lightyears ahead.

Back to why look at liquidations? As institutions come into the market, and retail wallets on exchanges like Binance and many others continue to use leverage, the action in the derivative (in this case ) can and often does drive the price of the underlying. Market makers hunt the maximum liquidations, always. The market context is highly relevant here. During volatile periods it is a swinging contrarian indicator. If there has been massive green bars showing short liquidations pushing the price up, then we could be forming/hitting resistance levels and can see reversal/selloffs, and vice versa if there are massive red bars showing long liquidations pushing the price down, this can be hammering out support levels and we look to bounce. The longs and the shorts really do seem to be taking turns getting liquidated right now.

Also of relevance is the price action relative to the liquidations. Obviously if an institutional candle pushes the price up or down, there will be mass liquidations. But another scenario that occurs is when are light volumes on the derivatives such as we have under the microscope here, but we have large Bitcoin price movements, then the reasons for the move can be understood differently, and we can use this and other contexts to draw conclusions such as for example a scenario where price goes up with light liquidations and derivative action, which could be interpreted as much stronger hands holding coins rather than simply margin calls.

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Good luck!

Note

tradingview.com/chart/xNmREF2h/

Update April 2023. The layout has been changed on the live chart to greatly increase the visibility of the liquidation levels and the tiny font on the liq. levels v2 indicator labels (example "25x [ 6.36 M USD]" in blue). It's still a bit of a squint to read this data but like many custom indicators you can't change the size of the text - although zooming your entire tradingview app window or browser window does increase the size.

The liquidation level visibility threshold is currently set at ~ 2.5M but I regularly change this depending on the average leverage in the market which varies a lot, such as on weekends for example, where we typically see far lower liquidations so this would be a typical timeframe to lower the threshold to view different parameters.

Because of the clustering of 25x 50x and 100x leverage data points/labels - the reported liquidation levels - the chart needed to have much higher vertical size to make it clear. Thus the side by side layout with the Bitfinex longs and short on the right hand side of this dashboard.

Also I have been experimenting with the dotted green line (25x SHORT liquidation level showing ~2.5M USD as the threshold to show up on this chart), and the dotted red line (25x LONG liq lev same settings).

The whole idea of experimenting with marking these dotted lines on top of the Bitcoin price (blue line) is to generate through this dashboard's automation another probability to stack when attempting to establish support and resistance levels. When it comes to leveraged positions and liquidation levels, another way to look at it is to ask "where would market makers MOST want the price to go in the short term?" This statement operates under the assumption that market makers are seeking to constantly liquidate the maximum possible leveraged positions. This is why I do not advise the use of leverage in crypto. The exchanges and market makers have all of this data in far more sophisticated dashboards and will hunt your stops, they will hunt your liquidation levels. So good luck if you're using leverage.

So for the purposes of SPOT crypto trading, we can use these levels at times in the market when there is a lot of leverage on one or both sides. For example if there are a lot of shorts in the market, then we look more closely at the level at which maximum pain will be caused (maximum liquidations), and assume the institutions may seek to push it to around those levels (support), then more longs will enter, and the cycle continues.

Note

This layout has evolved.

I have modified it greatly. The SOPR is now hidden. Now we have a short term main view of BTCUSDT liquidation levels (comments above still stand), which works best on the 1m chart, and we are showing 25x 50x and 100x levels (where the market makers/institutions will target) and the longer time frames usually 1h or 2h on the right showing BFX Longs+Shorts, Liquidation volumes, and Fear+Greed + VIX.

Note

Also, mlapplications is the creator of the main liq levels indicator. I am also using the copy that leviathan made of this indicator, with everything turned off besides the large market order crosshairs which appear on the candlesticks. Knowing where large market orders are being placed can be for many reasons, perhaps covering leveraged positions, perhaps being liquidated, perhaps FOMO buying or panic selling.

dreamalittle

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