CME Bitcoin Shorts Hit Extreme Level

Extreme short bitcoin futures positioning on the CME suggests prices for the cryptocurrency could be set for a bounce.

Risk-tolerant investors could consider buying the ProShares Bitcoin Strategy (ticker: BITO) exchange-traded fund, which tracks the price of bitcoin futures. The recently launched ETF was barely changed over the five days through Friday, down a mr=ere 0.5%, according to Yahoo.

What’s important here is that speculators have made historically large bets that CME bitcoin futures will see a fall in price. It’s no small bet when considered collectively. Here’s how:

Speculators, the bets on the bitcoin futures price going down (short positions) currently exceed those on it going up (long positions) by 6,238 contracts, according to a recent report from New York-based financial firm Macro Risk Advisors. As they say in markets lingo, the speculative part oft he bitcoin futures market is net short.

The report also details that this level of short position is extreme, being 2.7 standard deviations away from the mean short/long position level over recent history, in this case since the launch of CME bitcoin futures back in 2017.

What does this extreme reading mean? Two things.

  • First, the short position is a 1% event, according to MRA. That is to say this sort of net short positioning is not normal for the bitcoin market and it is highly unlikely to be repeated on a regular basis.
  • Second, the market is likely to jump. That’s because when markets see extreme net long or net short positions, the prices of assets tend to go the other way. At least they do historically. In this case, that would strongly suggest that bitcoin futures prices, along with bitcoin prices, will rise in the coming weeks as the futures positioning returns to a more normal level.

While profits are possible from a probable bounce in the bitcoin price, that doesn’t necessarily make bitcoin a good long term bet. There are plenty of skeptics out there who see a raw future for the cryptocurrency over the longer term. In simple terms, traders might be wise to view any rally as a short-term phenomenon.