In the midst of Bitcoin’s staggering fall, new data reveals that cryptocurrency hedge funds have significantly reduced their risk exposure in the Bitcoin market. According to André Dragosch, Head of Research at ETC Group, crypto hedge funds have lowered their BTC holdings to levels not seen since October 2020, indicating a retreat from the market.
Crypto Hedge Funds Throw in the Towel on Bitcoin
Dragosch’s analysis shows that over the last 20 trading days, crypto hedge funds have reduced their Bitcoin holdings to a mere 0.37, the lowest level since October 2020. This signals a major shift in the hedge fund industry’s sentiment towards the leading cryptocurrency.
“Crypto hedge funds have really thrown in the towel on Bitcoin lately. Over the last 20 trading days, they have reduced their holdings in the BTC market to only 0.37, which is the lowest level since October 2020,” – André Dragosch, Head of Research at ETC Group.
The diverse strategies employed by crypto hedge funds, both directional and market-neutral, make it challenging to pinpoint the exact reasons behind this decreased exposure. However, Dragosch emphasizes that the total net long exposure of these funds relative to Bitcoin as a benchmark has decreased significantly.
Outflows from Crypto ETFs
The reduction in hedge funds’ Bitcoin exposure has coincided with their continued net outflows from cryptocurrency exchange-traded funds (ETFs). This suggests a broader retreat from the crypto market as a whole, with hedge funds potentially adopting a more cautious stance.
Poor Market Timing and Potential for Rebound
Dragosch notes that hedge fund positions are typically highly pro-cyclical, meaning they often have poor market timing overall. He suggests that the current low exposure could lead to a significant market move when funds re-enter the market.
“Once we start rallying again, they may have to come back into the market, which will be important raw material for the upcoming upside leg,” – André Dragosch.
This implies that the hedge funds’ current low exposure to Bitcoin could potentially fuel a rebound in the cryptocurrency’s price, as they are forced to re-enter the market when the tide turns.
In conclusion, the data from ETC Group reveals a significant shift in the cryptocurrency hedge fund industry, with a notable reduction in their Bitcoin exposure. This retreat from the market may have broader implications for the crypto landscape, particularly if and when these funds decide to re-engage with the asset class.
