A number of asset managers are betting on a quick rise in bitcoin prices at the CME, with bitcoin prices dropping to $30,000 on Tuesday.
According to the latest CFTC data, Jun 15 showed that asset managers had 517 long bitcoin futures contract, which bet on a rise of bitcoin prices. This is a 35% increase from the week before. Asset managers last had more than 500 long bitcoin futures contracts in Q4 2020, when bitcoin prices reached a string record high.
Despite being bearish in the past few months, this group has almost returned to net neutral. This group was the first to start slowly shorting bitcoin in January, when the price of bitcoin soared past $35,000. After a plunge in bitcoin prices from $58,400 and $44,900, they became net-short on Feb 23. They remained that way until bitcoin lost half its value.
Asset managers are now the most bearish segment of the CME.
It begs the question: Why did a group experienced and sophisticated investors suddenly increase their long bitcoin bets?
First, asset managers are a unique group with distinct investment characteristics. They are not like other market participants. This makes them more opportunistic, and sometimes contrarian traders in highly cyclical sectors. Asset managers profited handsomely after bitcoin reached a record high of $64,900 in April 14 and corrected to $30,000.
Other factors could also be at play. Many asset managers could have been given mandates to increase bitcoin scale before they invest in other assets. This makes sense considering that the original cryptocurrency has more established derivatives markets. The CME actually offers two distinct bitcoin futures contracts in addition to cash-settled options. Asset managers are well aware that crypto markets can be volatile and that they can change quickly.
This transition is also welcome news for the market as many hedge funds, corporations and retail traders have reduced their exposure to crypto futures by around a third since the beginning of the year. A market that has a variety of participants is healthier.
However, data from other participants does not necessarily bear bitcoin in all cases. The reason there is less interest from these groups, which include hedge funds, corporations and retail traders, is that three of them diversified their crypto futures holdings to ether after the contracts were released in February 2021. These groups have maintained a consistent level of activity throughout the year. When it comes to bitcoin, asset managers are picking up the pace.
These data leave a few key points.
1) Asset managers are key participants in futures markets like Euro futures. They also attract banks to trade the opposite of theirs in any market they have. It is reasonable to assume that their participation will grow as the market matures.
2) The largest market makers in the crypto space have been hedge funds . It is encouraging news that asset managers and banks will be able to compete with hedge funds in liquidity provisioning. Futures markets offer tighter pricing and more liquidity, so it is a good thing for them.
3) Looking ahead, the reshuffle in asset manager open interests suggests that most people believe we are near the bottom of current bearish sentiment and that bitcoin could begin to climb again.