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History Favors Bitcoin Bulls Despite Crypto Hedge Funds Increasing Shorts

Bitcoin may be dripping lower at spot rates. Still, one analyst is unfazed, expecting the coin to reverse recent losses and snap up firmly before peaking in December 2024. At spot rates, BTC is down roughly 11% from 2024 peaks and struggling to generate sufficient buying pressure, looking at the formation in the daily chart.

Will History Support Bitcoin And Rally To Fresh Highs?

Taking to X, the analyst highlights historical price patterns using the 2-week Fisher Transform indicator, a tool for picking out potential reversal zones like double tops or bottoms. Though the technical indicator lags, it has accurately picked out peaks in the past. 

In 2021, when Bitcoin soared to over $69,000, the Fisher Transfer indicator printed a signal, highlighting potential peaks. In the coming weeks following this signal, prices crashed. 

Fisher transform indicator on BTC | Source: Analyst on X

By the end of 2022, Bitcoin had fallen to as low as $16,000, accelerated by the collapse of FTX and the bankruptcy of several other popular crypto hedge funds, including Three Arrow Capital (3AC).

The analyst also emphasizes the importance of the indicator in differentiating between a double top, mirroring 2017 and 2021, and a potential single peak later this year. 

Bitcoin prices trending sideways on the daily chart | Source: BTCUSDT on Binance, TradingView

Presently, the trader said prices are approaching 2017 levels. Then, prices created what the analyst described as a “more subtle initial rise” before peaking six months later at over $20,000. 

If this leads, and the indicator “pauses” where it is, Bitcoin will likely record a “single top.” However, only time will tell where this top will be at.

Hedge Funds Were Selling At Tops?

This prediction comes amid significant bearish bets by leveraged hedge funds. Data from the United States Commodities Futures Trading Commission (CFTC) reveals that these funds held record “short” positions in Bitcoin futures contracts by last week. 

Observers note this was the largest short position since 2017, at over 16,000 contracts. By shorting, they expected prices to dump, which is precisely what’s happening at spot rates. 

However, even as hedge funds short, another analyst, responding to the trend, said the futures premium remained high. This is a development that some of these crypto hedge funds are taking advantage of.

The number of shorts could increase in the days ahead as United States Federal Reserve officials appeared to be hawkish and upbeat economic data started pouring in. Being a data-driven central bank, the Federal Reserve might not slash rates as fast as initially projected.

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Enormous Hedge Funds Turn Their Eyes To Crypto. How Will It Affect The Market?

Are hedge funds ready to go all-in on cryptocurrencies? Probably not, but some of them are definitely dipping their toes in. The thing is, those toes are enormous. In the article “Mainstream Hedge Funds Pour Billions of Dollars Into Crypto,” the Wall Street Journal does a deep dive into the phenomenon. And we get a closer look into who’s doing what and who isn’t there yet.

According to Coinbase’s numbers, “institutional investors as a whole traded $1.14 trillion of cryptocurrencies in 2021, up from $120 billion the year before, and more than twice the $535 billion for individual investors.” Those numbers blast past predictions made just nine months ago, which, of course, NewsBTC covered:

“As per Intertrust, the results of the survey indicate that hedge funds plan to increase their crypto assets in the next five years.

An average figure based on the responses shows that by 2026, funds aim to keep $313 billion in digital assets, which is around 7.2% of their total assets.”

Why are they investing so much? And, what are the funds that abstain thinking? That’s what we’re here to find out. Let’s start with a quote from Michael Botlo, who ran Quantbot:

“The crypto universe is now liquid and large enough to be tradable. Hedge funds are seeing their own investors demand that the firms get involved.”

Which Hedge Funds Are In And What Are They Doing?

The latest news point to Brevan Howard Asset Management and Tudor Investment Corp., property of Paul Tudor Jones, who a few months ago said bitcoin is 100% certain. What are these hedge funds doing, exactly? Let’s quote the WSJ:

  • “Brevan Howard launched a cryptocurrency hedge fund in January that will begin accepting outside investors. The fund is making bets on the direction of bitcoin, ether and other cryptocurrency prices, while also searching for arbitrage between currencies.”
  •  “Brevan Howard has a new crypto division, BH Digital, created in September, which manages over $250 million and has 12 portfolio managers.”
  • “Mr. Jones has been buying cryptocurrencies to try to protect against rising inflation.”

Ok, great, but, why are those hedge funds going that route? Galaxy Digital Holdings’ Robert Bogucki tells us, “More funds see crypto as a fifth asset class.” And then, proceeds to give us some real alpha into the hedge fund’s strategy: 

“One difference from stock trading: Most hedge funds are avoiding shorting cryptocurrencies, says Mr. Bogucki, worried that these currencies might shoot up in price, leading to quick and big losses. Most funds have focused on buying tokens and trading futures, rather than playing options markets, which can be harder to trade though option activity is growing.”

BTC price chart for 03/09/2022 on Bitstamp | Source: BTC/USD on TradingView.com
Why Are The Hedge Funds Going That Route?

The reasons are more cut-throat than people might think. For example:

  • “The crypto market is relatively new with ample “inefficiencies,” or opportunities for big firms with access to timely and accurate information to profit.”
  • “The crypto market is also full of individual and inexperienced traders who often do poorly in squaring off with fast-moving funds.”
  • “Wall Street firms haven’t established dominance, creating potential opportunities for new players.”
  • “Traditional hedge-fund trading techniques often work in crypto, especially those focused on price and volume trends.”

What About The Naysayers?

Not all hedge funds are on board with cryptocurrencies. The article mentions Elliott Management Corp’s Paul Singer who “has been outspoken in his skepticism of cryptocurrencies”. Also, Citadel’s Ken Griffin. It’s worth noting that Ken Griffin was slamming bitcoin four years ago, but, recently he announced that Citadel Securities will offer cryptocurrency services. As reported by Bitcoinist:

“In an interview with David Rubenstein of Bloomberg Wealth, Griffin mentioned that the current geopolitical conflicts create remarkable downward slips of volatility with the markets.

Concerning digital assets, the Citadel founder had a turnaround in his stance as he revealed the plans of his company stepping into the crypto market this year.”

Ok, but, why are these hedge funds against cryptocurrency investing? The article quotes Squarepoint Capital’s Maxime Fortin saying that “there are significant regulatory hurdles.” Also, Raposa’s Agustin Lebron, who says:

“In many ways, trading crypto is analogous to other trading assets, but there are different kinds of risks. By the time you’re ready to hit the button and trade for real, the crypto world may have moved on.”

So, the crypto ecosystem moves too fast and is not regulated enough for some hedge funds. Got it, but, what about first-mover advantage? Isn’t the opportunity worth the shot?

Featured Image by Hunters Race on Unsplash | Charts by TradingView

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Survey: Hedge Funds Intend To Hold $300 Billion In Crypto Within 5 Years

A global survey of Chief Financial Officers has revealed that hedge funds are planning to hold 7% of their wealth in crypto within the next 5 years.

Reuters has described the survey results as a major vote of confidence for cryptocurrency assets within the current market environment.

The Hedge Funds Crypto Survey

Financial administrator Intertrust conducted the survey with over 100 CFOs participating from all over the globe. Chief Financial Officers, or CFOs, are executives who are responsible for managing their company’s finances.

As per Intertrust, the results of the survey indicate that hedge funds plan to increase their crypto assets in the next five years.

An average figure based on the responses shows that by 2026, funds aim to keep $313 billion in digital assets, which is around 7.2% of their total assets.

Related Reading | Nearly 1% Of Bitcoin Supply Is Now Wrapped In Ethereum

Another interesting finding from the poll is that 17% of the survey takers believe their funds will work with at least 10% of their assets as crypto, a figure that is around 3% higher than the average.

It’s unclear what the current crypto holdings by the funds look like, but one thing worth noting is that many big-names in the sector seem to already have invested appreciable amounts in digital assets.

Increasing Interest In Cryptocurrency

While huge volatility and uncertainty over regulation keep the majority of traditional asset managers skeptical about cryptocurrency, the hedge funds survey shows that there is still a growing interest in digital assets.

Executive Director at Quilter Cheviot Investment Management says hedge funds “are well aware not only of the risks but also the long-term potential” of crypto assets.

Related Reading | MicroStrategy Receives Over $1.5B In Orders For $500M Notes To Fund Bitcoin Purchases

Examples of firms that have already invested in digital assets include Man Group, Brevan Howard, and Renaissance Technologies. Some of the big-name fund managers who have also committed are Alan Howard and Paul Tudor Jones.

Another prominent case is Skybridge Captial, a US-based firm setup by Anthony Scaramucci, that invested into Bitcoin late last year. Due to trimming their investment early in April, Bitcoin became the largest contributor of their gains.

Overall, it is clear that there is a growing enthusiasm towards crypto assets in the industry.

Bitcoin Price

At the time of writing, Bitcoin price hovers over $39,280. The asset is down 11% in the past 30 days, but up 12% in the past 7 days. Here is a chart noting the change in the price of the cryptocurrency:

Bitcoin seems to be on an upward trend | Source: BTCUSD on TradinvView

While BTC seems to be back on track for going up, it’s not yet clear whether we are looking at a bullish market. Some experts believe we may be witnessing a bull trap.

Featured image from Unsplash, chart from TradingView