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Bitcoin Slides to $28.3K After Leveraged Funds Ramp Up Bearish Bets

Aug 17, 2023 at 08:27 am

Approximately two-thirds of the positions held by leverage funds are indicating a bearish stance, as highlighted by one observer. This observation underscores the prevailing pessimistic sentiment among sophisticated traders.

On an early Thursday, Bitcoin (BTC) emerged from its prolonged slumber, but the developments were not in favor of the bullish camp. The leading cryptocurrency experienced a decline to $28,346, marking its lowest point since June 21. This decline continued from the previous day's 1.6% decrease, which mirrored the risk aversion seen on Wall Street. The preceding Tuesday had witnessed a drop in U.S. stocks due to renewed concerns within the banking sector and apprehensions of a recession in China.

The downward fluctuations in BTC's value occurred shortly after the U.S. Commodity and Futures Trading Commission (CFTC) released its report on the commitment of traders (COT). The report highlighted that leveraged funds, which encompass hedge funds and commodity trading advisors, had escalated their bearish positions in the CME-listed cash-settled bitcoin futures during the week ending on August 8th.

Lawrence Lewitinn, the content director at The Tie's, a crypto analytics firm, shared insights on this situation. He mentioned, "Two-thirds of their positions are short (indicated in red), compared to one-third that are long (indicated in blue). This ratio is the widest it has been since April 2022."

Leveraged funds at their most bearish since April 2022. (The Tie, CFTC's COT)Leveraged funds at their most bearish since April 2022. (The Tie, CFTC's COT) 

It's plausible that sophisticated traders are expressing concerns over potential repercussions arising from an uncertain macroeconomic outlook and the increasing yields of U.S. government bonds, both nominal and inflation-adjusted. Furthermore, the cryptocurrency market seems to have shown indifference towards recent positive developments specific to cryptocurrencies. These include the introduction of a stablecoin by PayPal, one of the world's largest financial services companies, and the submission of various applications for futures-based exchange-traded funds (ETFs) linked to ether (ETH).

David Lawant, the head of research at institutional trading desk FalconX, commented on this matter. He stated, "Whether it's a major financial services company launching a stablecoin on a public blockchain infrastructure or the renewed interest in futures-based ETH ETFs driven by a flurry of new applications, both volatility and volume metrics continue to decline to levels not seen in years."

In the grand scheme, while the positive trends and underlying fundamentals in the cryptocurrency space maintain an atmosphere of optimism, it's prudent to closely monitor any potential ripple effects stemming from macroeconomic conditions on broader risk assets, and by extension, on the crypto market, as Lawant further emphasized.

Bitcoin's recent resurgence of downside volatility is consistent with its historical tendency to experience temporary peaks following significant rallies, a pattern similar to the one observed in the meme coin SHIB. The coin, often referred to as a potential competitor to dogecoin, witnessed a remarkable 20% surge in the initial 12 days of the month. This surge was driven by the anticipation that the launch of Shibarium, a layer 2 solution, would enhance the coin's reputation as a serious player within the cryptocurrency industry.

However, starting from August 12th, the cryptocurrency faced an 18% retreat in its value, with a substantial 9% drop occurring within the last 24 hours alone. This decline was concurrent with the turbulent initiation of Shibarium. Funding rates in the SHIB perpetual futures trading on Binance plummeted to a two-month low of -0.084%, based on data provided by the source Coinglass.

 Coinglass reports that Binance's SHIB futures contract size is set at 1,000 SHIB.Coinglass reports that Binance's SHIB futures contract size is set at 1,000 SHIB. 

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