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As bitcoin prices briefly fell below $ 30,000 on Tuesday and various investors see a drop to perhaps $ 20,000, a growing number of asset managers have started betting on a short rise. term of the cryptocurrency at CME.
The latest CFTC data from June 15 shows that asset managers have 517 bitcoin long futures contracts, which bet on a rise in the price of bitcoin, a 35% increase from the previous week. The last time asset managers had more than 500 long futures was in the fourth quarter of 2020, when bitcoin prices started a series of record highs.
The growth in bullish bets has been so sudden that this group has almost returned to a net neutral position although it has been strongly bearish in recent months. For context, this group was the first to slowly start shorting the asset in late January during the stock market, as bitcoin surpassed $ 35,000. They went net short on February 23 following a drop in the price of bitcoin from $ 58,400 to $ 44,900 and stayed that way, with bitcoin losing 50% of its value.
Asset managers place more bullish bets on bitcoin
CFTC, Forbes
Asset managers have become almost net neutral in the CME
CFTC, Forbes
In fact, asset managers have become the least bearish segment of the CME.
Asset managers are the least bearish group of investors in the CME
CFTC, Forbes
This begs the question, why did a group of sophisticated and experienced investors suddenly increase their bitcoin long bets?
First of all, it should be noted that asset managers as a group have unique investment characteristics. They do not show the always long or always short behavior of other market participants, making them more opportunistic and often contrarian traders, especially in highly cyclical sectors. After bitcoin hit its all-time high of $ 64,900 on April 14, asset managers were quick to increase their short positions and profited greatly as bitcoin corrected to $ 30,000.
There could also be other factors at play. For example, many asset managers may have been given mandates to gain scale in bitcoin before jumping into other assets, which makes sense being given that the original cryptocurrency has much more established derivative markets than the ether. In fact, the CME offers two separate Bitcoin futures contracts as well as cash-settled options. Finally, asset managers know better than anyone that hyper-volatile cycles are a regular feature of crypto markets that can come and go suddenly.
Additionally, this transition is timely for the market, as hedge funds, businesses and retail traders have recently reduced their exposure to crypto futures by about a third since the start of the year. Having a diverse set of participants contributes to the health of a derivatives market.
Asset managers’ exposure to bitcoin has grown faster than any other group
CFTC, Forbes
That said, not all data from other participants is bearish for bitcoin either. One of the reasons for the decrease in interest among these other groups is that three of the five hedge funds, companies and retail traders diversified their crypto futures holdings into the ether when these contracts were released in February 2021. The the overall level of activity of these groups remains constant. for the year. Asset managers are just taking over when it comes to bitcoin.
Other participants diversified into the ether
CFTC, Forbes
Outlook
These data leave a few key points to remember.
1) Asset managers are major participants who run the bulk of other futures markets such as euro futures and trick banks into taking the opposite trade of their transactions in the market in which they operate. Therefore, it is reasonable to expect their participation to increase as the market matures.
2) Hedge funds function as the biggest market makers for the crypto space and that’s good news if asset managers and banks grow to compete with hedge funds when it comes to providing liquidity, the higher the future growth and the tighter the prices offered by the futures markets.
3) Looking ahead, the reshuffle of asset managers’ open interest suggests that most of them think we are near the trough of the current bearish sentiment and that bitcoin may start to rise again.
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