Omicron Risk Unlocks Profits For Bitcoin Bypassing Retail Traders
The latest Commitments of Traders (COT) report released Monday evening by the Commodity Futures Trading Commission (CFTC) for the week ending November 23 found a threefold increase in the number of bitcoin futures held by retail investors compared to the previous week. . These assets, called open interest, represent the capital held at the CME as collateral for long and short transactions. Breaking down the average number of bitcoin short futures held by retail traders (around 798 contracts until last week), the COT report showed a 200% increase in bitcoin short contracts from 887 to 2,663. The monetary equivalent of this net overdraft increase is $ 511 million, and it should be noted that it does not come from micro bitcoin futures (MBT) trading, which is still nascent and 20 times smaller. than the BTC futures market.
This dramatic change follows a temporary but equally marked (long bitcoin) bullish move in the second half of October. Together, these moves suggest that perhaps wealthy retail investors, those able to buy the typical $ 300,000 CME bitcoin futures contract, could start placing short-term speculative bets in tandem to profit. short-term movements in the volatile cryptocurrency market. Over the past few weeks and months, the market for providing crypto trading information has shifted from trading platforms like LMAX Digital and Coinbase to a few US banks with crypto research teams. Wealthy retail traders need specialist brokerage access to trade CME futures and this can be done through companies like ADM, Stonex, thinkorswim (owned by Schwab), as well as a small number of investment banks that have authorized high net worth clients to buy and sell CME crypto futures. .
A surprising development seen in the CME bitcoin futures market is the fluidity with which market participants take and mitigate trading risk. While retail traders are currently unusually short in bitcoin, a small group (eight to ten) of asset managers active in CME futures took massive and long bitcoin futures positions in November, totaling over 5,000 bitcoin futures contracts equivalent to $ 1.5 billion.
Thus, the long term bitcoin holdings of commercial and retail traders seen in October in the midst of the launch of the ProShares BITO bitcoin ETF, ushered in the demand from asset managers which they, in turn, received from institutional clients wanting a long bitcoin position in their funds.
Trade traders, who are companies and / or professionals with extensive industry and market knowledge, typically hired to mitigate trading risks through the use of futures contracts, have greatly reduced their long term holdings in bitcoins to pre-BITO levels, but have sharply increased their contracts ‘spread’ – which involves holding long and short positions in the same contract to provide liquidity to those who need it. Separately and over the past few weeks, this group of traders has built up a significant short position equivalent to $ 113 million in MBT futures, making them the largest providers of short liquidity. In other words, this group of traders has gone from facilitating liquidity for the sharp rise in the bitcoin ETF in October, to less exposure and selective provision of liquidity in new areas like MBTs.
Meanwhile, retail traders have artfully adopted the bitcoin short futures position discussed earlier, betting on the price of bitcoin possibly falling below the $ 57,600 bitcoin level seen last week – bitcoin fell to a low of 53,200 on November 28th and this could have provided some of those details traders a profitable exit from their short trades – which become profitable when the price of an asset declines in value.
The big picture remains bright for bitcoin and cryptocurrencies in general as institutional demand continues to grow, with big asset managers like Vanguard and BlackRock allowing the funds they manage to pay out around $ 3 billion. dollars each in crypto stocks from November 2021 and rival Fidelity almost doubling to 200 their institutional clients – hedge funds, family offices, registered investment advisers, pensions and corporate treasury – who use execution and brokerage services. company bitcoin custody.
As the price of bitcoin fell 18% below its high of $ 69,000 on November 10, this is due to strong macroeconomic headwinds such as rising inflation and the impact of the Omicron variant on the global economy, not weak demand for bitcoin. In fact, the sharp drop in crude oil prices – Brent crude oil prices down more than 20% since November 10 – shows that Omicron’s uncertainty is providing an organic pause to inflationary forces. It will be weeks, if not months, before the world regains confidence in its ability to defeat the Omicron variant, and in the meantime, it’s reasonable to expect lower expectations for global economic growth, higher inflation. low and modest appreciation of risky assets like cryptocurrencies. For these reasons, savvy investors will continue to look to the evolution of crude oil prices as an indicator of expected global energy demand, but also as a guide to bitcoin’s potential for appreciation in the near term.