Bitcoin shorts by institutional traders are high based on CFTC data
Most traders were net short Bitcoin on Chicago Mercantile Exchange’s (CME) regulated futures market based on their latest report.
Data from the Commitment of Traders (COT) report released Friday, July 26 shows that both commercial and non-commercial traders held a combined 4,464 short contracts to 3,216 longs on CME, skewing the balance 58% to 42% in favor of the bears.
Breaking down the COT Report for Bitcoin
Published weekly by the US Commodity Futures Trading Commission, the COT report details the positions of traders in regulated futures venues for commodities including currency, petroleum, metals, and grains. It is considered one of the CTFC’s core responsibilities in reducing risk in the US futures and swaps markets.
The report is widely used as a signal for futures traders in all markets, giving a record of how institutional and retail participants are positioned and how their holdings have changed over time.
Since the December 2017 launch of the sole regulated BTC futures contracts, CME and that of the now-defunct Chicago Board Options Exchange (Cboe), COT data has become a popular means of gauging institutional sentiment for Bitcoin.
Majority of traders are short, especially commercial traders
Notably, the most recent COT report reveals that all commercial traders were short July 23rd, as were the bulk of non-commercials traders—suggesting Bitcoin’s recent bear-trend may continue.
Where retail traders may tend to pay particular attention to the activity of non-commercial traders such as hedge funds speculating on the short-term price fluctuations of Bitcoin, commercial positions can also offer insight into future price trends.
Commercial traders, typically seen in conventional futures markets to be banks and other large financial institutions, use Bitcoin futures to hedge against sudden movements. In practice, these traders usually shift to long at mid-to-long-term market bottoms, and switch gears to short at market tops.
Open interest suggests longs being liquidated
The market’s decrease in open interest along with declining price would tend to suggest that traders are terminating their long positions and exiting the market. Typically, one would expect open interest to stabilize before a sustained rally.
The findings of the latest COT report—including a decrease in open interest, the commercials’ total short position, and the net short position of the non-commercials, may indicate that Bitcoin will see lower lows before resuming its long-term uptrend.
Soon, the futures physically-settled Bitcoin futures market may soon provide a more accurate gauge of sentiment. ICE-owned Bakkt and the recently-licenced LedgerX, aim to provide greater opportunity for institutional price discovery.
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