Bitcoin saw a significant decline on Friday, falling as low as $68,450 and then rising slightly to over $69,000. A notable change in market sentiment occurred at the same time as this swing in the price of Bitcoin. The Commodities and Futures Trading Commission’s (CFTC) most recent Commitments of Traders (COT) report showed the change.
A Lot of Hedge Funds Are Shorting Bitcoin
According to the article, hedge funds are betting significantly against the oldest cryptocurrency by heavily shorting Bitcoin. Furthermore, institutional investors’ pessimistic perspective is reflected in the spike in short positions, which implies that many people anticipate a drop in the price of Bitcoin.
This pattern was noticed by the financial news source Zerohedge on X. On Friday, they noted a “huge jump and new record high in BTC hedge fund net shorts.” Before this, Zerohedge had correctly anticipated that there would be a significant rise in short bets against BTC in the most recent COT update.
Zerohedge’s prediction that “when this snaps, it will make Volkswagen/GME look like an amateur hour” suggests that the market would experience a sharp turnaround. When there are many short positions in the market, short sellers may be forced to cover their positions through buybacks in the event of a sharp price increase.
This action is causing prices to rise even more, a situation referred to as a short squeeze. The analogy between GameStop and Volkswagen highlights the possibility of considerable market disruption. A sudden squeeze in 2008 that surprised many investors saw Volkswagen momentarily overtake all other companies as the most valuable firm in the world.
Similarly, retail investors orchestrated a buying frenzy that propelled GameStop’s stock price skyrocketing in early 2021, resulting in enormous losses for individuals with short positions. Analysts predict that the repercussions of this hedge fund activity will affect Bitcoin more than GameStop or any other stock that is subject to a short squeeze.
Although short positions indicate a negative outlook for Bitcoin’s near-term future, quick and unforeseen price swings are possible due to the erratic nature of cryptocurrency markets. Short sellers would lose much money if the price of bitcoin rose dramatically. As they rush to hide their shorts, it can trigger a cascade of purchases.
Next Steps For The Price Of Bitcoin?
Hedge funds that are shorting BTC anticipate a $18,175 drop in the currency’s current value. On the other hand, the long—and short-term outlooks are positive, according to analyst insights and technical indicators. This suggests that BTC might reach a new top shortly. If the forecast is accurate, these short positions will be closed, resulting in an extraordinary rise.
On the other hand, Friday’s trading activity saw Bitcoin momentarily fall below $69,000, leading to liquidations of long holdings instead of shorts. However, the market is still tense since it knows that a sharp increase in Bitcoin’s price might lead to a dramatic short squeeze. In addition to driving up costs, this might replicate—or even exceed—the market dynamics observed in previous financial crises, such as those involving GameStop and Volkswagen.
As of Sunday, June 9, the price of Bitcoin had decreased by 0.06% to $69,382.34. However, the massive cryptocurrency showed an astounding $1.36 trillion market valuation. Furthermore, the 24-hour volume of Bitcoin trades fell to $12.95 billion, a 62.23% decline.
