Are institutions predicting a recovery for the crypto market? The latest report from CoinShares reveals that short products on Bitcoin (BTC) dedicated to professional investors have flowed $27 million, or about 15% of the current outstanding amount of these products.
Institutions are closing their shorts on Bitcoin
Monitoring the positions of institutional players is an excellent indicator of the state of the cryptocurrency market. In its latest weekly report dated December 5, 2022, CoinShares reveals to us that these professional investors massively close their short positions on Bitcoin (BTC).
Over the past week, the mass of short products – which allow betting on the downside – on bitcoin has targeted institutional decreased by $27 million. It would be almost 15% of the outstanding amount on these productsaccording to data from major issuers such as GrayScale or CoinShares.
To help us interpret this data, we interviewed François Laviale, CEO of Alphacap Digital AM. According to him, an outflow of institutional short positions “is of course an element that must be taken into account” :
“The crypto market is a flow market. Taking collection/withdrawal into account is therefore an important indicator. In a nascent market, small flows can move the market significantly.”
As for the interpretation, François Laviale explains to us that the data presented in the CoinShares report “ show shortness of breath on the part of the sellers » :
“These institutional investors believe that the market has already priced in the future cascading bankruptcies of several other crypto players. In fact, the fall in FTX affected the market by -25%, where BlockFi’s fall only affected it by -3%.”
In addition, long-term Bitcoin investment products saw inflows of over $11 million last week. These two data can be a sign an improvement in the mood of institutional investors around cryptocurrencies, after the recent FTX debacle.
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Is this a sign of a recovery on the way?
So is this really the case? Can we conclude that professional investors are considering it bitcoin bottomed out and that the market should rise again soon? According to François Laviale, we must remain cautious and aware of “detects a trend reversal” :
“If the volume of outflows is significant relative to outstanding, the analysis must be qualified because these volumes remain very low compared to the volumes of short options available on certain exchanges. »
In addition, professional investors has yet to re-expose itself to Bitcoin. Long-type investment products – bets on short-term increase – registered just $3.3 million in admissions last week. In other words, the feeling is rather one of patience while waiting for the storm to pass.
“Institutional players are generally more rational than retail investors and it is normal to see profit taking at such low levels. »
Finally, François Laviale ends by reminding “that it is always difficult to determine a bottom” and that even if the short products fall out, “we are still very far from the levels of collection on long products that we saw in 2021 and at the start of the year” and that we must therefore keep an eye on these flows.
Other elements naturally come into play, esp the miners’ potential capitulation. The fall in the price of Bitcoin currently places them in a situation of financial stress, which pushes the less resilient to abandon their activities.
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