CFTC: Hedge funds overwhelmingly going long on bitcoin futures

Andrew Munro 30 January 2018 NEWS

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Hedge fund sentiment goes bullish on BTC for the first time at a 2:1 ratio. But interpret with caution.

OPINION: For the first time since the Commodity Futures Trading Commission (CFTC) has started publishing reports on bitcoin positions among regulated investors, there are more investors going long on bitcoin futures than short. Specifically, leveraged funds are showing 1,142 long positions in bitcoin futures. This is more than twice the number of 518 short positions.

In a nutshell:

  • The most popular sentiment among hedge funds now is that bitcoin prices will go up in the future.
  • It's the first time this has happened since late December. Previously, the popular sentiment was that bitcoin prices would be going down.
  • It's a dramatic-looking swing from less-than-half to more-than-double.

Why are hedge funds feeling good about bitcoin?

Bitcoin was worth about US$15,000 to US$17,000 throughout the day when futures trading first launched on 11 December, so bitcoin's current prices of about $11,200 might simply be looking like they'll rise again. It's possible that this "good news" is just a direct result of bitcoin's slumping prices.

However, bitcoin still has a lot of new development coming up, and institutional investors might be expecting that these will lift prices in the near future.

  • Lightning Network. The Lightning Network (LN) is developing more quickly than some people expected, and enthusiasts are already putting money into the LN mainnet. Its development is showcasing the enthusiasm of the bitcoin community as well as the distinct benefits of open source systems. Its successful launch might happen sooner than expected, which could make bitcoin prices go up.
  • Natural market recovery. Prices are down across the board right now. Hedge funds might simply be expecting the cryptocurrency market to bounce back as it has in the past.
  • Network improvements. After months of rising transaction fees and an increasingly congested bitcoin network, it's finally started to see improvements, and for the first time in weeks, it seems like bitcoin might actually be able to clear the network of unconfirmed transactions. This could have reassured some futures investors who were unsure of bitcoin's continued usability ahead of the Lightning Network release.


What goes up must come down and vice versa

Below you can see the bitcoin prices from roughly the start of CBOE bitcoin futures trading to around now.

snip btc 3 mo price

Source: CoinMarketCap


It arrived when BTC prices were near their peak, and BTC prices have mostly been going down since then. During that time, the majority sentiment was that BTC prices would go down.

Now the popular sentiment among hedge funds, by a ratio of about 2:1, is that BTC prices will be going up again. You'll also notice that the prices tend to rebound fairly sharply after each drop.

As analyst Duncan Campbell said in October 2017, when bitcoin first broke the US$5,000 milestone: "There are always those waiting in the wings to buy bitcoin whenever there is a price dip. Not because they're interested in trading it but because they feel it is seriously undervalued in the long term."

The bullish position on bitcoin might have simply been the result of looking at those prices and figuring that they're more likely to go up than down, rather than any kind of more detailed stance on the future of bitcoin from Wall Street.

It's also worth remembering that this optimistic outlook is tempered by the fact that the hedge funds are trading bitcoin futures rather than actually buying and selling the coins. They're not making an actual investment, they're simply making a bet that bitcoin prices will be higher in the future than they are now.

And if you're forced to choose a side one way or another, that probably seems like the more sensible option right now. This bullish shift probably bodes well for bitcoin prices; it's a world first and the numbers are very striking. At the same time, it's a fairly mundane and expected swing. And without knowing details like the specific dates of the newly opened long contracts, one might want to interpret the news with caution.

A beginner's guide to bitcoin futures trading.


Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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