Follow the Money It’s the best way to find out how major investors feel about the market. Over the past week, money from this group of investors has shown that they lack confidence in bitcoin in the short term and often go short.
New cryptocurrency money for short positions
That is CoinShares’ conclusion. Every week they write the Weekly Digital Asset Fund Flows Report, a report on the cryptocurrency market. The main conclusion is that relatively little money has been taken out of crypto by major investors, but this new money is mostly used for short positions.
CoinShares in the chart above:
Digital asset investment products had small outflows totaling $1.8 million. This masks broader negative sentiment, as the largest inflows went to short-term investment products.”
timeout Before we go any further, it might be helpful to explain what short positions are.
What does a Bitcoin short mean?
With most investments, such as Bitcoin, shares or commodities, you can bet on a price fall (short) or a price increase (long). Such bet is accepted by contract. All of these contracts are collectively known as the futures market because they trade in the future.
Many investors assume that this year’s price increase cannot continue. They open a contract with an exchange stating that they are going to sell Bitcoin.
When you go short, you sell your bitcoin at market value. Later, you hope to buy back the same number of bitcoins at a lower price. If the price actually falls, those investors will get more bitcoin for the same amount of money.
But will the price go up? So either your position is closed and you lose everything, or you have to prove you have enough cash to buy Bitcoin at a higher price than contracted. You do this by providing collateral. If the collateral is no longer sufficient, the position is automatically closed and the investor loses everything, this is called liquidation.
Back to last week and the behavior of major investors.
Behavior of US investors
Overall, there was an $11.7 million outflow in the bitcoin futures market. At the same time, there was an entry of US$9.9 million in short products. That leaves a net outflow of $1.8 million.
Importantly, CoinShares only looked at the US market, so prices are in USD.
Why Investors Don’t Trust Bitcoin
When investors open a short position, they are betting on a lower Bitcoin price in the future or they have little confidence in the market. But where does this distrust come from?
CoinShares says:
Bitcoin recorded outflows for the third week in a row, this time totaling $11.7 million, while Bitcoin shorts recorded inflows totaling $9.9 million. We believe this response reflects jitters among US investors following recent stronger-than-expected macro data, but also underscores sensitivity to US regulatory action.”
So you give two reasons, the first is that the economic data is better than expected. This can cause the dollar to become stronger (read: more valuable against other currencies). Historically, bitcoin has not fared well when the dollar is strong. There is a kind of inverse correlation between the two.
The second reason is that US government agencies have launched an attack on crypto companies. After the fall of the FTX that cost millions of Americans money, this is a logical political response.
Advantage of short positions in Bitcoin
Betting on a bitcoin futures price, of course, carries a high degree of risk. We absolutely do not recommend it and therefore do not offer it on BLOX. In addition to the risks, there are also benefits. One is the possibility of a short squeeze.
If the price rises, the short positions are closed and these investors have to buy Bitcoin at a higher price. This leads to a small price increase, forcing more investors to close their short positions and buy Bitcoin again. The price rises slightly again and more contracts are liquidated.
Short positions are squeezed like a lemon and this phenomenon is known as a short squeeze.
Content specialist wanted
Did you enjoy reading these articles and want to contribute to our content? We are looking for a new crypto content specialist with a proficient pen and knowledge of the crypto market. View our vacancies here and respond immediately!
Source: Btc Direct
Source link
Barry Siefert is an accomplished journalist and author at The Nation View. He is known for his expertise in the field of cryptocurrency, and has written extensively on the topic. With a background in finance and economics, Barry has a deep understanding of the underlying technology and market forces that drive the crypto industry.
