According to data from ETC Group, cryptocurrency hedge funds significantly reduced their risks in the Bitcoin market to levels not seen since October 2020.
“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,” said André Dragosch, Head of Research at ETC Group. said.
The crypto hedge fund industry is diverse, with a variety of strategies that can be both directional and market neutral. Therefore, it is difficult to determine the main factors behind this decrease in exposure. “But what we can say is that the total net long exposure of these crypto hedge funds relative to BTC as a benchmark has decreased significantly,” Dragosch added.
This reduction in hedge funds' Bitcoin exposure coincided with their continued net outflows from crypto ETFs. Dragosch also explained that hedge fund positions are typically highly pro-cyclical, implying that they generally have poor market timing overall.
“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,” he said. This suggests that the current low exposure could lead to a significant market move when funds re-enter the market.
*This is not investment advice.