The Last Time Institutions Built This Big of a Bitcoin Short, It Crashed 60%

bitcoin price

As Bitcoinist has extensively covered over recent weeks, Bitcoin is in an odd spot. The leading cryptocurrency currently trades above the support of $8,500 and below the $10,000 resistance.

With BTC stuck between a rock and a hard place, investors have become indecisive as to what comes next. Nothing shows this as well as the funding rate of Bitcoin futures markets, which have trended towards 0.00%.

Yet data has shown that quietly, institutional traders have been building a notable Bitcoin short position.

Institutions Are Building a Bitcoin Short Position Via the CME

According to data shared by crypto news aggregator “Unfolded,” data shows that institutional investors in Bitcoin are short-term bearish.

Unfolded shared the chart below on July 12th, which cites data from the Chicago Mercantile Exchange’s Bitcoin futures market. The CME BTC futures are arguably the foremost market for firms on Wall Street to get exposure to cryptocurrencies.

The data shows that accounts deemed “institutions” are cumulatively net short just over 2,000 contracts.

Chart of BTC’s price action over the past year + data from the CME’s Commitment of Traders (COT) reports. Chart from TradingView.com, current as of July 12th.

This is important as the last time institutions had such a big short, the cryptocurrency market crashed.

Just a week before Bitcoin fell from the $9,000s to $3,700, institutions had a net short of around 2,000 contracts. And prior to the crash of BTC after the launch of Bakkt, institutions also had a net short.

They’re Long-Term Bullish

Despite the short-term bearishness of institutional Bitcoin holders, data shows that they expect the cryptocurrency market to do well in the long run.

Take the example of Grayscale Investments’ Grayscale Bitcoin Trust. It is a publicly-traded investment fund that many see as the most accessible Bitcoin investment vehicle for Wall Street firms.

I found in June that over the course of the twelve weeks before my analysis, 62,973 Bitcoin had been added to the trust. This is important as over that same time frame, 125,388 coins were mined.

This means that a single firm, buying BTC on behalf of its clients, accumulated half of all coins mined.

Graph of Grayscale Bitcoin Trust accumulation vs. coins mined over a 12-week period (12 weeks before June 7). Graph from Nick Chong

Fidelity Investments also came out with a survey corroborating this. 

Released at the start of June, the survey revealed that many institutional investors see promise in Bitcoin and the crypto market.

“Digital assets are gaining in favorability and appeal amongst institutional investors, with almost 80% of investors surveyed finding something appealing about the asset class. In a comprehensive survey of almost 800 institutional investors across the U.S. and Europe, 36% of respondents say they are currently invested in digital assets, and 6 out of 10 believe digital assets have a place in their investment portfolio.”

As to why institutions are interested in crypto, Fidelity cited the uncorrelated nature, strong potential upside, and technological innovation of this asset class.

Featured Image from Shutterstock
Price tags: xbtusd, btcusd, btcusdt
Charts from TradingView.com
The Last Time Institutions Built This Big of a Bitcoin Short, It Crashed 60%
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