Chicago BTC Futures ‘Smart Money’ Bets Against Bitcoin Rally
A recent article published on Forbes argues that the behavior of Chicago Futures Trading Commission (CFTC) ‘smart money’ does not bode well for the bullish outlook of Bitcoin.
While most cryptocurrency investors are looking to the bullish price leaps for Bitcoin and top cryptos over the past week, some analysts are now questioning whether a pullback is eminent. Bitcoin has managed to hold over $5000 for the majority of the week, and is trading above its 200-day moving average. Historically, such an indication has proved fortuitous for Bitcoin investors, with cryptocurrency analytics firm Fundstrat claiming that the 200-day EMA is a very bullish indicator for BTC.
However, futures on Bitcoin appear to be betting heavily against a sustained bull run by the coin, with the ‘smart money’ overwhelmingly in favor of a recession from current prices. On April 5th, the Commodity Futures Trading Commission released its weekly report showing that large, professional investors (referred to colloquially as ‘smart money’) are taking position that would support a fall in Bitcoin prices despite the most recent bull run.
According to the report, small capital speculators increased their long positions by 18 percent and decreased their short positions 27 percent compared to that of a week ago. Given their price movement, individual and small capital investors, on average, are leaning towards the Bitcoin price rally continuing past current levels. However, the large capital investors–hedge funds and institutional traders–raised their short bets by a whopping 45 percent over a week ago.
In addition, the large capital traders decreased their long positions by 24 percent, almost a complete reversal of the behavior exhibited by small-time traders. As Brendan Coffey, writing for Forbes puts it, the actions of the large capital futures market is a bearish sign for Bitcoin,
“Taken altogether, it’s a sizable bearish step this week. It’s a tried-and-true rule in futures that the big traders are right well more than they’re wrong, while the “small specs” have a terrible tendency to be betting the wrong way. If you’re a Bitcoin bull, you were hoping this week’s COT would confirm the cash market rally’s bullish sentiment. It doesn’t.”
Coffey points out that there is some lee-way in analyzing the behavior of the futures market. For one, the report examines positions that were created as of Tuesday–despite being released on Friday–which missed a substantial portion of the sustained bullish market behavior that followed April 2nd’s meteoric rally. It also only reflects the actions of traders who have a minimum level of Bitcoin futures, potentially skewing the market in the direction of behavior that favors more active futures positions.
As well as analyzing the Bitcoin futures market, Coffey also points out that the 200-day moving average could in itself provide a source of price resistance, being one of the most closely followed indicators of value movement. He also finds the $6000 mark, which Bitcoin has yet to breach in this rally, to offer substantial resistance to bullish investors. Considering $6000 was about where the price of Bitcoin tanked in November 2018, there will be a glut of investors looking to sell and recoup their position over the last six months, thwarting Bitcoin’s rally.