Bitcoin
Hedge Funds Heavily Shorting BTC, Will This Overcome GameStop Saga?
On Friday, Bitcoin suffered a notable drop, dropping as low as $68,450 before a modest recovery to just over $69,000. This movement in Bitcoin’s price coincided with a significant change in market sentiment. The change was reflected in the latest Commitments of Traders (COT) report from Commodities and Futures Trading Commission (CFTC).
Hedge funds are heavily shorting Bitcoin
The report indicated that hedge funds are heavily shorting Bitcoin, placing substantial bets against the older cryptocurrency. Furthermore, this increase in short positions reflects a bearish outlook among institutional investors. This suggests that many expect the price of Bitcoin to fall.
Financial media outlet Zerohedge highlighted this trend on X. They pointed out a “huge jump and new record in Bitcoin hedge fund net short positions” on Friday. Previously, Zerohedge accurately predicted that the latest COT update would reveal a substantial increase in short positions against Bitcoin.
Zerohedge’s comment that “when this happens, it will make Volkswagen/GME look like amateur hour” alludes to the potential for a dramatic market reversal. In the world of trading, a high number of short positions can lead to a situation where a sudden price increase forces short sellers to cover their positions through buybacks.
This movement drove prices even higher – a phenomenon known as a short squeeze. The comparison with Volkswagen and GameStop highlights the potential for significant market disruption. In 2008, Volkswagen briefly became the world’s most valuable company due to a crisis that caught many investors off guard.
Similarly, GameStop’s share price rose in early 2021 as retail investors coordinated a buying spree, leading to massive losses for those holding short positions. For Bitcoin, analysts expect the implications of this hedge fund activity to be greater than those of GameStop or any other short squeeze stock.
While short positions reflect a pessimistic view of Bitcoin’s short-term prospects, the volatile nature of cryptocurrency markets means that rapid and unexpected price movements can occur. If the price of Bitcoin rose sharply, those with short positions would incur substantial losses. This would potentially lead to a cascade of buying as they scramble to cover their short positions.
Read too: Bitcoin Holders With 964K BTC Near Breakeven, Will BTC Price Fall to $67K?
What’s Next for BTC Price?
Hedge funds shorting Bitcoin expect a drop of $18,175 in the current price of BTC. However, technical indicators and analyst insights suggest an optimistic outlook in both the short and long term. This indicates that Bitcoin could soon reach a new peak and, if the prediction comes true, these short positions will be liquidated, leading to an unprecedented rally.
However, Friday’s price action saw Bitcoin briefly fall below $69,000, triggering liquidations in long positions rather than short ones. However, the market remains nervous, aware that a sudden increase in Bitcoin’s value could trigger a dramatic squeeze in sales. This would not only increase prices, but could also mirror or even surpass market dynamics seen in previous financial episodes such as Volkswagen and GameStop.
At the time of writing, the BTC Price fell 0.06% to $69,382.34 on Sunday, June 9. Meanwhile, the crypto giant sported a phenomenal market valuation of $1.36 trillion. Additionally, Bitcoin’s 24-hour trading volume plummeted 62.23% to $12.95 billion.
Read too: Top 10 Cryptocurrencies That Outperformed Bitcoin This Year