Institutional Bitcoin Craves Record Hedge Fund Short – CME Data


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According to CME, the number of long-term Bitcoin (BTC) contracts held by institutions is at an all-time high. However, CME’s latest Commitment of Trader report shows that hedge funds are hit record highs in BTC shorts.

There seems to be a huge difference in perceptions of the short to medium term trend of Bitcoin between hedge funds and institutions.

CME Bitcoin Futures Net Open Interest. Source: Aslant

Why are hedge funds aggressively selling Bitcoin, but not institutions?

Hedge funds typically employ different strategies to generate returns for investors. Hedge funds often use derivatives and have a riskier strategy.

In contrast, institutional investors who allocate a percentage of their portfolio to Bitcoin are likely to have a long-term strategy. This means they don’t worry about BTC’s short to medium term performance.

Some analysts say hedge funds are likely to be short of Bitcoin to provide liquidity to institutions craving the highest cryptocurrency.

As institutional investors increasingly build their long positions, sellers need to be on CME to balance the backlog. Mitchell Nicholson, a cryptocurrency analyst, said:

“Many HFs are likely to sell CME futures that are hedged to hit the base or provide liquidity to long-term institutions.”

Technically, hedge funds could short-circuit Bitcoin even after repeated rejection of a key level of resistance. Bitcoin has not been able to break out of the $ 11,700 to $ 12,000 resistance area since August.

Bitcoin has mostly been hovering between $ 10,500 and $ 11,700 for over two months and has struggled to show upward momentum.

After BTC rebounds from $ 3,600, hedge funds may expect a sharp decline.

A pseudonymous trader named “Bluntz” said the current technical structure of Bitcoin looks similar to February. In March, BTC fell to USD 3,596 on BitMEX in an abrupt surrender period.

Due to the open positions, it remains unclear whether hedge funds at BTC are net empty or whether buyers at CME provide liquidity. Skew said:

“The new CME Commitment Of Trader report has just been received for BTC Futures: HF’s all-time short. Institutions of all time. Who is wrong “

The institutions continue to show high demand

Despite the growing bitcoin short positions held by hedge funds, institutional investors continue to accumulate BTC.

On October 17, Grayscale CEO Barry Silbert said the company had achieved all-time high management (AUM) management with $ 6.4 billion. The number of shades of gray is critical in measuring institutional activity as their products are primarily tailored to institutional investors.

The US does not have a Bitcoin Exchange Traded Fund (ETF) approved by the US Securities and Exchange Commission (SEC). Hence, institutions rely on the Grayscale Bitcoin Trust, which works more like an Exchange Traded Product (ETP), to get involved in Bitcoin.

Large multi-billion dollar conglomerates like MicroStrategy and Square, which have invested in Bitcoin, also emphasized their intention to treat BTC as a treasury asset. At least in the short to medium term, these institutions are unlikely to sell their BTC holdings.