The latest Commodity Futures Trading Commission (CFTC) figures show that leveraged funds, defined by the Commodities Futures Trading Commission (CFTC) as hedge funds and commodity trading advisers, ramped up their bearish bets on futures.
This aligns with the ‘basis trade,’ a leveraged arbitrage strategy that speculators have used extensively throughout the year to capitalize on the price disparities between the underlying asset and futures.
At the end of the first quarter, speculators’ short positions reached a record level as the flagship cryptocurrency’s price rally stalled. These funds increased their net short positions in the Chicago Mercantile Exchange’s (CME) standard bitcoin futures contracts to 16,102, marking the highest since these futures started trading in late 2017. Each of these contracts represents 5 BTC.
Short futures positions, a strategy that involves selling a futures contract in anticipation of the underlying asset’s price decrease, are commonly used by carry traders or arbitrageurs to capitalize on the price differential between the spot and futures markets.
This record buildup in short wagers may indicate a strong interest from hedge funds in carry trade opportunities, exploiting the high futures premium despite bitcoin’s recent price decline from its peak.
Bitcoin’s momentum faltered after reaching highs above $73,500 in March, but CME futures have maintained an annualized three-month premium of over 10%. This premium offers higher yields compared to traditional financial instruments like the 10-year Treasury note, which had a yield of 4.36% at the time.
Some hedge funds might also be positioning themselves bearishly in response to recent U.S. economic data and Federal Reserve officials’ statements, which suggest a cautious approach to interest rate cuts.
Moreover, there’s speculation on how bitcoin will perform following its upcoming mining reward halving. While historical data suggests bull runs follow halvings, the introduction of spot exchange-traded funds (ETFs) in the U.S. and their massive inflows may alter bitcoin’s market dynamics. Experts caution against relying heavily on past trends due to these fundamental changes and the small sample size of previous cycles.
The launch of spot ETFs and their impact on bitcoin’s market have shifted the landscape, potentially affecting the cryptocurrency’s performance post-halving differently than in past cycles.