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The latest figures from the Commodity Futures Trading Commission (CFTC) show that leveraged funds, which the Commodities Futures Trading Commission (CFTC) defines as hedge funds and commodity trading advisors, have increased their bearish bets on futures.
This is consistent with the “basis trade,” a leveraged arbitrage strategy that speculators have used extensively throughout the year to profit from price differences between the underlying asset and futures.
At the end of the first quarter, speculators' short positions reached record levels as the flagship cryptocurrency's price rally stalled. These funds increased their net short positions in the Chicago Mercantile Exchange (CME) standard Bitcoin futures contracts to 16,102, the highest level since these futures began trading in late 2017. Each of these contracts represents 5 BTC.
Short futures positions, a strategy that involves selling a futures contract in anticipation of a decline in the price of the underlying asset, is often used by carry traders or arbitrageurs to capitalize on the price difference between the spot and futures markets .
This record rise in short bets may indicate strong interest in carry trade opportunities from hedge funds, taking advantage of the high futures premium despite Bitcoin's recent price decline from its peak.
Bitcoin's momentum faltered after reaching highs above $73,500 in March, but CME futures have maintained a three-month annual premium of over 10%. This premium offers higher returns compared to traditional financial instruments such as the 10-year Treasury note, which had a yield of 4.36% at the time.
Some hedge funds may also take a bearish position in response to recent U.S. economic data and statements from Federal Reserve officials suggesting a cautious approach to interest rate cuts.
Additionally, there is speculation about how Bitcoin will perform after the upcoming mining reward halving. While historical data suggests that halvings are followed by an uptrend, the launch of spot exchange-traded funds (ETFs) in the US and their massive inflows could change Bitcoin's market dynamics. Because of these fundamental changes and the small sample size of previous cycles, experts warn against relying heavily on past trends.
The introduction of spot ETFs and their impact on the Bitcoin market have changed the landscape and may affect the cryptocurrency's post-halving performance differently than in previous cycles.
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