Data on Bitcoin futures from the Chicago Mercantile Exchange (CME), on the Commitments of Traders (CoT), shows a sharp decline in aggregate holdings by institutional traders for June.
Bitcoin price with open interest on CME. Source: TradingView.com
In early February this year, which was the previous instance of this happening, a downturn in the Bitcoin price followed. This culminated with the crash to $3.9K some four weeks later.
While Bitcoin’s recovery since Black Thursday did imbue a sense of confidence, price action for June may signal a change in sentiment.
At the start of June, the BTC price peaked at $10.3k, a 17 week high. But a slow bleed out since then, in which price has failed to make higher highs, has seen a rounded top pattern forming on the daily chart.
In parallel with a fall in interest from institutional traders, all signs point to the possibility of further price drops as this month draws to a close.
CME Futures Show Bearish Bitcoin Sentiment From Institutional Traders
CME releases a CoT report each week which shows position data held by each of the three categories of trader. Those being retail, professional, and institutional traders.
The latest CoT report shows institutional traders, which include money managers and hedge funds, are net short with an aggregate position of -2,038 BTC.
This contradicts sentiment held by retail and professional traders, who are both net long.
At present, retail traders remain somewhat flat with an aggregate position of +1,797 BTC, making up the bulk of the activity on CME Bitcoin Futures.
Whereas professional traders have increased their position since the start of this month. Currently, they are holding an aggregate position of +703 BTC.
While it’s arguable whether institutional traders have a better track record than both retail and professional traders, the last time institutional traders sold off, Bitcoin crashed to $3.9k a few weeks later.
March’s crash was sudden and unexpected, with little indication coming from the previous price action. This time around, the current institutional sell-off is coinciding with a price pattern that is rolling over.
The daily chart of Bitcoin on Binance. Source: TradingView.com
Is a Second Downleg in the Stock Market Coming?
With the disparity between retail and professional traders, and institutions, it’s possible the former is not considering the implications of Q2 earnings reports, which are due out in the coming weeks.
Although stocks have responded well to record levels of Fed stimulus, there are doubts about whether this is sustainable.
Investment writer, Sean Williams points to several factors that suggest another stock market crash is incoming. Chief among Williams’ point is the view that businesses, as a whole, will not pick up where they left off.
Many firms have already reported difficulties as a result of the lockdown. However, could the Q2 earnings reports be what brings the stock market back to reality?
As much as Bitcoin likes to paint itself as separate and different from stocks, there is no denying a strong correlation at the present time.
Taking that into account, perhaps retail and professional traders are overly optimistic.