Hedge Funds Bet Against Bitcoin with Record Short Positions on CME Futures

Hedge funds are ramping up their short positions against Bitcoin on the Chicago Mercantile Exchange (CME), even as spot Bitcoin exchange-traded funds (ETFs) enjoy a 19-day streak of inflows.

According to Zerohedge, the Commodities Futures Trading Commission (CFTC) Commitments of Traders (COT) report revealed a significant increase and a new record high in Bitcoin hedge fund net shorts.

Are Hedge Funds Bearish on Bitcoin?

The data shows hedge funds increased their net short positions in CME standard Bitcoin futures contracts. These positions reached a record high of 18,175 contracts. These contracts, sized at 5 BTC each, are part of a trading strategy in which traders sell futures contracts to profit from anticipated drops in the underlying asset’s price.

Read more: Shorting Bitcoin: How It Works and Where You Can Do It In 2024

Hedge Funds Short Bitcoin Position. Source: X/Zerohedge

Sina G, the co-founder of BTC-focused 21st Capital, suggested that these record short positions may indicate hedge funds’ interest in the carry trade strategy. Carry traders typically short futures while concurrently buying the asset, aiming to exploit the price differences between the spot and futures markets.

“These are more speculative positions and could indicate a carry trade where the hedge fund is long Bitcoin elsewhere. But asset managers hold the opposite position. These positions are less speculative and longer-term,” Sina G remarked.

Interestingly, these record short positions coincide with a 19-day streak of inflows into Bitcoin ETFs. During the last three weeks, the ETFs saw over $2 billion in inflows. However, despite this substantial influx, Bitcoin’s price failed to reach its March all-time high of $73,835. Instead, it registered a modest 2% gain in the last seven days.

Bitcoin ETF Flows. Source: SoSo Value

This BTC’s subdued price performance has left many investors puzzled. However, market experts explained that this trend is due to major financial institutions purchasing Bitcoin ETFs and simultaneously selling futures to capitalize on the price difference. This resulted in significant ETF inflows with minimal impact on Bitcoin’s spot price.

Read more: What Is a Bitcoin ETF?

Nonetheless, Samson Mow, CEO of JAN3, is convinced that “all Bitcoin shorts will eventually close, either willingly or unwillingly.”

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