Hedge funds are placing their bets against Bitcoin by taking short positions as BTC shows signs of exhaustion from the recent rally that saw it climb to an all-time high of $73,000.
According to data published by the Commodities Futures Trading Commission (CFTC) last week, leveraged funds, which include hedge funds and commodity trading advisers, increased their short positions against Bitcoin at the end of the first quarter of 2024.
The data shows these funds expanded their net short positions on standard Bitcoin futures contracts at the Chicago Mercantile Exchange (CME) to 16,102. The standard Bitcoin futures contracts at the CME have a size of 5 BTC.
Why Hedge Funds Are Betting Against Bitcoin?
Bitcoin tends to rally during the halving process. According to the countdowns, the halving is around two weeks away, but BTC is showing signs of retreat after pumping to record highs following the approval of spot Bitcoin exchange-traded funds (ETFs) in the US.
BTC has dropped by 4.6% in the last 24 hours. The king of crypto, also touted as digital gold, performs dismally compared to the physical precious metal, which recently jumped to record highs of above $2,300 per ounce.
In Q1 2024, hedge funds bet that Bitcoin would drop lower. The increased buildup of Bitcoin short positions indicates that investors are not convinced that the digital asset will make meaningful gains.
While speaking to CoinDesk, Markus Thielen of 10x Research said these short positions indicate hedge funds are interested in the carry trade.
A carry trade happens when traders buy an asset while also shorting futures to benefit from the price difference in the spot and futures market.
“There is a massive demand from hedge funds to put on carry trades,” he said. “Despite Bitcoin’s -10% decline from the all-time high, the futures premium has remained in double digits, and hedge funds are taking advantage of these high rates.”
Which Side is The Wall Street On?
Wall Street has played a major contributory role in the recent gains made by Bitcoin to record highs. The filings of spot Bitcoin ETFs by some of the largest asset managers on Wall Street helped draw institutional attention to the digital asset.
However, Wall Street is not optimistic that BTC can maintain the recent gains. In February, JPMorgan published a report indicating that Bitcoin would likely plunge to $42,000 after halving once the euphoria dies.
According to the analysts, the halving process will result in less profitability for miners. As a result, some miners might decide to cease operations, resulting in a decline in the Bitcoin mining hash rate, which will consequently lead to a drop in price.
The flows into spot Bitcoin ETFs have also been subdued. Data published by BitMEX research for April 3 shows a net inflow of $113.5 million, compared to $40 million on April 2.
The recent ETF flow data starkly contrasts with what was seen in March. On March 12, net inflows to these BTC products hit a record high of $1 billion.
