Bitcoin Futures Traders Are Quietly Building A Big Short Position

In retrospect, the launch of bitcoin futures one month ago has proven to be a modestly disappointing event: while it helped send the price of bitcoin soaring as traders braced for the institutionalization of bitcoin, the world's most popular cryptocurrency has stagnated since the beginning of December when first the Cboe then CME started trading bitcoin futures, trading in a range between $12,000 and $17,000.

And while bitcoin futures markets volumes have been lower than most had expected, the past 4 weeks have provided enough data to observe how volumes and open interest have evolved.

We discussed previously  that Bitcoin futures were off to a slow start in the first week of trading, with volumes of CBOE Bitcoin futures averaging just around $40MM per day, despite intense media hype helping fuel heavy trading when both contracts launched, at least in the first hours of trading.

Since then, volumes spike briefly in the following week coinciding with the launch of the CME futures, with volumes of on both exchanges at relatively similar levels.

Then, as JPM's Nikolaos Panagirtzoglou shows, after a spike in volumes to around $200mn on 22 December, which saw sharp swings in underlying Bitcoin prices, volumes have averaged around $50mn and $60mn per day on the CBOE and CME futures, respectively.


One month after their launch, futures trading volumes remain very modest compared to average Bitcoin trading volumes of around $15bn per day since futures contracts were launched according to data. While open interest in both the CBOE and CME contracts has risen steadily, it too remains rather modest at around $60mn and $70mn, respectively.

Putting futures volumes in context, on Friday, the combined size of the bitcoin-futures markets at the two exchanges was roughly $150 million, measured in terms of the value of outstanding contracts, while the total value of all bitcoins in existence was around $290 billion. 


Another factor behind the slow volume growth may be the reluctance of many Wall Street banks to touch bitcoin futures. Firms such as JPMorgan Chase & Co. and Bank of America Merrill Lynch haven’t offered their clients access to bitcoin futures.

Another notable observation: with both volumes and open interest between the two sets of futures contracts converging, it suggests that a large degree of arbitraging of price differentials has taken place between the contracts which initially showed significant divergence. As JPM further notes, when trading in the CBOE futures initially started, a striking feature was the wide basis between the futures contract and the underlying bitcoin prices, which intraday exceeded $2000 or more than 12% of the underlying price at the time. While traders provided numerous explanation for the spread, since then the difference between futures prices on both the CBOE and CME contracts and underlying bitcoin prices has narrowed significantly (chart below), and even turned negative briefly last week.


That covers bitcoin futures volumes, but what about positioning? Well, as many traders expected, it appears that institutions are using the futures product to slowly but surely build a short position in bitcoin. According to the CFTC Commitment of Traders report (available CBOE futures), non-commercial traders held a net short position of around $30mn as of Tuesday Dec 26, or around half of the total open interest.

Separately, the Traders in Financial Futures breakdown provided by the CFTC show that the leveraged funds category that consists largely of hedge funds and various money managers had a short of around $14mn, or around a quarter of the total open interest.

In other words, spec investors have used the futures contracts to establish Bitcoin shorts.

How does this compare with other asset classes typically used as a store of wealth such as gold and silver? As JPMorgan explains, for gold futures, non-commercial investors held as of Dec 26 a net long position of around 30% of open interest, of which the managed money category held around 80%, while in silver futures both the non-commercial and managed money categories were close to zero.


* * *

An analysis by the Wall Street Journal  confirms that while hedge funds and other large traders are betting that bitcoin will fall, small investors remain convinced that bitcoin prices will keep on rising.

As the WSJ reports, for traders who hold fewer than 25 of Cboe’s bitcoin futures contracts—a category that likely encompasses many retail investors—bullish bets are 3.6 times more common than bearish ones, according to the latest Commodity Futures Trading Commission data that cover trading through Tuesday.

Meanwhile, the big CBOE players in bitcoin futures tend to be short. For instance, among “other reportables”—large trading firms that don’t necessarily manage money for outside investors—short bets outweighed bullish “long” bets by a factor of 2.6 last week.


The historical data will probably not come as a big surprise: many skeptics on Wall Street have called bitcoin a bubble and would be more apt to bet on its decline. In a sign of how more conservative firms are keeping their distance, the CFTC data show near-zero trading in Cboe’s bitcoin futures by banks and asset managers.

There is probably more optimism in the retail segment than there is in the institutional segment,” said Steven Sanders, an executive vice president at Interactive Brokers Group Inc., an electronic brokerage firm that offers its customers access to bitcoin futures.

And sure enough, presenting JPM's data in a slightly different context, COT data shows that hedge funds and other money managers had placed almost 40% more short bets than long bets last week.

Curiously, it is worth noting that that represented a less bearish outlook than they had in late December, when such funds had more than four times as many short bets as long bets.

To be sure, shorting bitcoin futures doesn’t necessarily mean a trader expects bitcoin to crash. In a natural hedge, a cryptocurrency trading firm with significant holdings of bitcoin might go short to hedge those inventories against a price fall. That would make the firm indifferent as to whether bitcoin goes up or down.

As the WSJ further notes, shorting futs could also be part of certain sophisticated trading strategies, such as betting that rival cryptocurrencies will outperform bitcoin. One such rival, Ethereum, rose above $1,000 for the first time last week, more than double its value from the beginning of December.

With the CFTC data, “you’re not seeing the full picture,” said James Koutoulas, chief executive of hedge-fund firm Typhon Capital Management, which trades futures in bitcoin as well as commodities. Typhon has swung back and forth, being long and short bitcoin futures at various times, Mr. Koutoulas said.

Of course, it's not just bitcoin.

As JPM writes, any given cryptocurrency faces competition from other cryptocurrencies, posing risks to their individual valuations. Indeed, the market capitalisation of Bitcoin has risen by around $100bn to around $270bn since late November, while other cryptocurrencies have seen a significant increase in market cap from around $130bn to nearly $500bn currently.


Other cryptocurrencies - mostly ethereum and ripple - have benefited from the increased interest in Bitcoin amid the listing of exchange traded futures, as well as the sharp rise in Bitcoin average transaction costs from around $6 per transaction in early December to nearly $60 per transaction on Dec 22, before settling in a $25-$30 range in recent days.


By contrast, average transaction fees in Ethereum reached a high of $1.50 in early December and were around $1 on Jan 4, while average transaction fees in Ripple measure a few cents according to The one-third share of Bitcoin of the total cryptocurrency market cap of around $770bn represents a new low. In contrast, the market of $770bn for the total cryptocurrency market represents a new high.

* * *

And while we await futures contracts to be announced on other cryptos, most likely ethereum and ripple next, events which we believe will be catalysts for substantial price upside in both cryptocurrencies, the question for bitcoin is who will be right: institutions, who are short, or retail investors (especially those in Japan and South Korea) who remain fervently long. If the past 7 years - in which retail has consistently trounced "smart money" returns are any indication, bitcoin is about to soar as yet another major short squeeze develops in the coming weeks and months.


crazytechnician Throat-warbler… Sun, 01/07/2018 - 19:10 Permalink

Investors trying to short bitcoin are really gonna shit the bed with this. Do investors placing short bet's actually realise the exchange needs to buy enough bitcoin in to cover the short in case it goes south ? By buying bitcoin to cover the short position the exchange itself is pushing up the price. That leads straight to a margin call on the fool trying to short.

In reply to by Throat-warbler…

Mr_Potatohead crazytechnician Sun, 01/07/2018 - 19:22 Permalink

Did you ever learn about "naked short selling"?  It's a great game if you are in the club allowed to do it in the name of maintaining orderly markets or stabilizing the financial system.  And margin calls are for the little people.  There is nothing to stop the really big and well connected guys with deep pockets from shorting cryptos into the ground without buying a single bitcoin.  When BTC goes zero-bid like a dead pump-and-dump penny stock, the regulators won't bother because they won't care about whether the big buys broke the rules on something that is worthless.

In reply to by crazytechnician

zebra77a crazytechnician Sun, 01/07/2018 - 19:57 Permalink

Every exchange can rehypothecate ALL the cryptocurrencies and they are..  Do go study the Bitcoin protocol its designed to operate only inside bitcoin afaik. Until your funds are removed from the exchange they are technically not back on the blockchain.   Simply ask yourself if it takes 5 minutes to confirm a block how did your order go in seconds...

But its glaringly apparent some kind of legislative crackdown is in the wings against miners or cryptos or something. Bitcoins about to get hammered maybe not right away..

In reply to by crazytechnician

crazytechnician zebra77a Sun, 01/07/2018 - 20:04 Permalink

Apart from being full of shit. How large is your short position ? I'll tell you - A big fat fucking ZERO. Why ? You don't have the stomach , the balls , or the capital to put your money where your mouth was. If you did , the last place you would be shouting off would be here. You don't know shit about bitcoin or the blockchain.

In reply to by zebra77a

tion zebra77a Sun, 01/07/2018 - 20:46 Permalink

>Naked short's can be done on any exchange where re-hypothecation is possible. Unlike fiat or GLD,SLV You cannot do that with bitcoin.

I think that technically, taking into consideration what zebra is saying, that the exchanges like Coinbase could possibly enter into some sort of three-party pledge with the OCC and DTCC, allowing this to be done without the CBOE having to buy the bitcoin.  Given the opacity surrounding this, I don't really know if this is something that could even really be looked into.

In reply to by zebra77a

tion tion Sun, 01/07/2018 - 21:12 Permalink

^-- I guess what I am trying to say is that bitcoin can be naked shorted if any of the regulated exchanges enter into a pledge agreement.  I hope someone smarter than me and with a scary lawyer can please look into this and prevent it from happening.  


Please don't hold your bitcoin on the regulated exchanges folks.  They will serve their own best interests first, not ours.

In reply to by tion

zebra77a tion Mon, 01/08/2018 - 03:56 Permalink

In 2015 the feds raided coinbase and forced them to reveal ALL clients.  Does anyone honestly think they are not there today?  Now as for the blockchain the bitcoin blockchain was designed to handle bitcoin. It required a separate blockchain to track IBM shares another blockchain to handle the EURUSD pair. That technology required one blockchain per instrument.  So the exchanges had to provide a liquidity pool a localized account which one could trade crypto pricing. And these virtual accounts could have 100,s of crypto 'balances' sitting there but were only virtual representations to the blockchain. They are representing the balances of each persons account.  But each crypto has its own technology completely. For instance the monero was not even of the same blockchain and or technolgy as a bitcoin.  So if I sold bitcoin and bought monero on coinbase  how could the two disparate cryptos blockchains even communicate? The answer was they don't!! An intermediary virtual account is required!  So the exchanges really have localized exchange pools. Which means they can type up any account balances and positions they wanted like pokerstars does then trade a virtual account against your balances. Rehypothecation as they desire like the Forex shops do the same. It it fails make another virtual account... As long as there is no withdrawal run against the cryto the exchanges were laughing.. 

Of course eventually somewhere someone would make a withdrawal too large to conceal the ponzi.  Withdrawal's from the exchange account to the blockchain was the point of truth. Once the 'wealth' was back onto a blockchain it enjoys all the benefits and disadvantages of that crypto.

Any balances of any whale client may  never be returned from an exchange. If you are buying crypto only invest risk capital. If you are trading it on an exchange only invest superrisk capital. Whales are the targets here..However coinbase had a bigger problem the feds were now standing there watching them since 2015 which probably made them forced them to actually be semi-honest?. We can only speculate..  So their next step probably  was  the 'hack trick' where the balances are simply dumped and the exchange closed down but were held back. Like Mount Gox?. 

As for the short position build up China central banks moved to cut off power to Chinese miners. They also closed their exchanges. A very coordinated attack on crypto is probably near which makes it a great buying point. Question is - which one..  I am going with 'coinbase gets closed down for $200 Alex..'

In reply to by tion

sessinpo zebra77a Mon, 01/08/2018 - 05:32 Permalink


Every exchange can rehypothecate ALL the cryptocurrencies and they are..  Do go study the Bitcoin protocol its designed to operate only inside bitcoin afaik. Until your funds are removed from the exchange they are technically not back on the blockchain.   Simply ask yourself if it takes 5 minutes to confirm a block how did your order go in seconds...

But its glaringly apparent some kind of legislative crackdown is in the wings against miners or cryptos or something. Bitcoins about to get hammered maybe not right away..


Yes, you are correct that trades on crypto exchanges are done off chain and it isn't until the user removes his crypto  from the exchange that the transaction must be recorded. exchanges hold a small percentage of the coin that is actually traded. They have algorithms that tell them the likely percentages of account holders that will likely withdraw and how many account holders will keep their holdings on the exchange. Not sure of the figures, but I've read somewhere that exchanges hold less then 30% of the amount of coin actually traded. If there should be more withdrawals then the amount the exchange holds, the exchange must go into the open market and buy enough coin to cover the withdrawals

Futures exchanges are totally different since they settle in fiat, actually no crypto is involved except for the spot price. No reyhpothecation is needed.

In reply to by zebra77a

zebra77a sessinpo Mon, 01/08/2018 - 05:44 Permalink

There you go whats to stop 30% turning into 10% turning into 1%..  If 99% of crypto is traded virtually off its 'chain' then it can be easily naked shorted etc by a couple exchanges  if chosen.. But they simultaneously gave it value by adding a mechanism of exchange. The 1000 altcoins would not be worth dogecoin if the exchanges had not given an on ramp for escaping fiat. What will happen is a distributed non-centralized  blockchain ledger that accommodates multi-party instruments and is FAST..  One of the future cryptos will do this then the CB's are gonna panic..

In reply to by sessinpo

Mr_Potatohead crazytechnician Sun, 01/07/2018 - 20:05 Permalink

These are cash-settled futures contracts. What happens to the price of bitcoin if the guys in charge have really deep pockets and start selling futures contracts like there's no tomorrow?  Does your open ledger matter to them?  Deep enough pockets can push any paper market up.  They also can force any paper market down.  Pretty soon the action in the paper market can dictate what occurs overall.  Gee...  where have we seen this kind of thing before?

In reply to by crazytechnician

crazytechnician Mr_Potatohead Sun, 01/07/2018 - 20:13 Permalink

They can cash settle more GLD in one day than get's mined in 5 years. Reason: GLD stocks cannot be audited. You really think exchanges playing bitcoin can pull the same shit ? What is their bitcoin holding public address ? Clients can see the actual amounts held on the exchange - in real time. Applying old rules to a brand new game , won't work , cannot work.

In reply to by Mr_Potatohead

Nature_Boy_Wooooo Mr_Potatohead Sun, 01/07/2018 - 22:02 Permalink

What about the remaining 2,000 crypto?


If they hammer Bitcoin down below fart coin they risk getting absolutely massacared by the crypto community. Let's be real here if Bitcoin drops out of the too 10, shit coin holders will be dumping their shitcoin for Bitcoin in an instant.


How are the bankers going to manipulate the market when they can only control the price of 38% of it through Bitcoin. This isn't the tiny 100% controllable PM market. Efficient market theory destroys this ridiculous gold bug wet dream theory...... without 100% market control the market will always regress back to the mean.

In reply to by Mr_Potatohead

sessinpo Mr_Potatohead Mon, 01/08/2018 - 05:37 Permalink

Mr_Potatohead crazytechnician Jan 7, 2018 8:05 PM

These are cash-settled futures contracts. What happens to the price of bitcoin if the guys in charge have really deep pockets and start selling futures contracts like there's no tomorrow?  Does your open ledger matter to them?  Deep enough pockets can push any paper market up.  They also can force any paper market down.  Pretty soon the action in the paper market can dictate what occurs overall.  Gee...  where have we seen this kind of thing before?


The problem with your scenario is that the trades on the futures exchange do not dictate the spot price. For example, in precious metals, the spot price is determined each day by a group in England. You don't have that situation in crypto. They can be short all they want but if the users of exchanges world wide push the price up, those shorts will simply get hammered.

In reply to by Mr_Potatohead

Nature_Boy_Wooooo gatorengineer Sun, 01/07/2018 - 22:21 Permalink

Fucking No-Coiners.


They're going to get REKT. How the hell are they going to drive down Bitcoin prices? Every idiot shit coin pumper who buys shit coins because......."they are cheaper than Bitcoin" going to buy the fuck out of Bitcoin if it becomes "cheaper than shit coins".


They have futures on 1 out of 2,000 coins and think they can contol the price. 


Bring on the tax payer bailouts the banks are to big to get REKT.

In reply to by gatorengineer

alphasammae crazytechnician Mon, 01/08/2018 - 02:19 Permalink

I agree in the case of regular John Doe individual investors. Unfortunately, it does not apply to institutional investors washed with fiat cash like hedge funds and ETFs as they have access to trillions in USD stacked in offshore accounts and do not pay taxes anywhere so that they accumulate cash to use to short using fiat paper and never having to buy anything physically and make money just trading digitally with algorithm programs waiting for the fruit to fall off the tree; time is money for small investors but not for institutions. This is how they create bubbles and keep gold and future metals trading in a narrow range under their control by just balancing futures and physical deliveries and rolling over the future contracts digitally with paper without having to deliver. In the blockchain, these institutions are now selling BTC futures without owning BTC and shorting GBTC fund with paper. Futures are balanced with USD at expiration not having to buy or deliver BTC. Since GBTC fund may be too small compared to BTC volume, Wall Street is now trying to introduce more ETF funds so that they can short more BTC. Unfortunately, the model of Santoshi's blockchain governance does not seem to have made allowance to prevent participation from Elephant players to prevent shorting manipulation by institutions as has been going on in the gold market. It is just a matter of time 12-18 months before blockchain will be another market trading like gold.

In reply to by crazytechnician

JIMSJOE2 crazytechnician Mon, 01/08/2018 - 04:27 Permalink

It is evident that some do not understand futures and their purpose as these are basically used to hedge. If I own bitcoin and have it in my wallet and want to protect my profits I would buy put options, (going short), to lock in my profits. At this point I could care less if prices go up or down as I am fully hedged. I make money if prices go up or down. If prices go up and I decide to sell by bitcoin in my wallet I can then let my hedges expire worthless or close out my hedges after selling. If prices fall thru the strike price I can exercise my hedges for cash, still sell my bitcoin and still make money. The hedges are like insurance contracts to lock in profits and protect from losses and it is simple as that. Take large wheat farmers with crops in the ground. They buy put options in case there are bumper crops and prices fall. They are protected from financial ruin. Who are long using call options? Speculators who are betting prices go up. Both know their maximum potential loss which is the cost of the options.

      Now the exchange does not have to buy bitcoin for two reasons. One is if you have profits and close out the contracts you must settle in cash and you cannot settle in actual bitcoin. Secondly like all futures these are again contracts. Most are under the assumption that when you buy or sell on these exchanges you are buying or selling the underlying asset but you are not. If I am hedging I am actually taking advantage of the price movement of the underlying asset so if my trade or the physical commodity I am hedging goes south I am protected from financial ruin. This is the main function of all futures markets.

      Take the nonsense promoted by those who market metals to consumers claiming every time price falls some "cartel" is suppressing prices on the Comex. Who really has the most shorts? It is actually the physically commodity producers, dealers and traders who are hedging short dollar positions in currencies using mostly put options if prices fall. 2/3rds of the hedge funds have been going long using mostly call options hedging their long dollar positions in currencies. If the dollar gains strength they make money when they close out the currency positions. If the dollar weakens and prices in futures fall thru the strike price I can then exercise my hedges for cash and be protected.

      Now the hedge funds have been bouncing prices from one reversal or resistance level to another depending on what the large currency traders in London are doing with the EUR/USD, GBP/USD and USD/JPY crosses. The reversal levels have been 1362, 1272 and 1240. The resistance levels have been 1300,  1260 and 1200. This has been the trading range. Where do these levels come from? Armstrong Economics computer models which track both domestic and international capital flows in world markets.

      Unfortunately the alt media as become as bad as the MSM. People for a number of years have been using fear porn predicting a dollar and Dow collapse, Comex default and bankruptcy, credit freezes, supply chain disruptions, all markets are manipulated so buy metals and of course "any day" metals price are going to the moon. Total nonsense! As I have posted before this is what is really happening especially outside US borders with global macroeconomics events. In 2009 Armstrong Economic models forecast that the Dow would hit 22,000 then 23,000 and eventually to around 40,000 all due to the capital flight out of Europe as it has been collapsing with capital being moved out and into dollars and US equities causing the massive dollar strength we saw in the past and moving dollar based assets higher and this will not only continue but accelerate in 2018. The first two targets have been hit for the Dow. For 2018 the models forecast the Dow to hit 25,000 first and then over 28,000 and we hit last week already the first target. The models are spooky accurate.

     Europe really starts to collapse in 2018.89 according to the models. They have forecast that in 2018 both the Monetary and Sovereign Debt Crisis hits there along with the pension crisis. Recently Italy announced they are working on a plan to abandon the euro, another bank there is in trouble, 50% of all German cities and provinces are broke from the migrant costs, mayors across France ask the government for help as they too are broke from the same reasons, German industry has demanded massive tax cuts due to the US tax plan and will be uncompetitive and the pension crisis has hit Spain and will totally run out in 2018. Folks a shit storm is getting ready to hit there and it will not survive in its present form along with the EU and euro. The whole house of cards has been collapsing and this will accelerate and cause dollar strength and move US equities higher and move gold and silver down.

     Now it did not help when the ECB wiped out share and jr. bondholders in the 3 failed banks in Italy and Spain which caused investors to dump massive amounts of these "assets" across the entire EU banking sector. They are now cut off from capital markets along with many of the large corporations. Most banks and countries are insolvent. The only thing propping it up is the ECB creating 60 billion euros a month out of thin air and buying all the toxic sovereign and corporate debt. Also it didn't help when an ECB official came out and stated no deposits are safe. Folks you can not get anymore clueless than this. Brussels and the ECB has totally destroyed the EU project along with Merkel. Banks are in trouble and depositors will be cut off, countries are in trouble and will default on sovereign debt, most countries will be forced to stop pensions, governments will topple and riots will erupt. Two years ago Spain had over 67 billion euros in the pension account and now around 2 billion as Rajoy and his cronies have used the funds to prop up Spain.

     Now Europe is in panic mode. Martin Armstrong and staff were recently in Europe holding emergency meetings with existing and new clients. China is so concerned about a collapsing Europe and trade that they flew in PBOC officials and met with them in London. The staff flew to Brussels and met with EU officials as they finally have realized the whole thing is collapsing.

     These are the global macroeconomic events happening outside the US and effecting price movement in US markets. Most Americans are simply unaware what has been occurring outside their own borders. Folks as we move further into 2018 we will be watching the largest financial collapse the world has ever seen! Buckle up as we are going on a ride of a lifetime!  

In reply to by crazytechnician

zebra77a JIMSJOE2 Mon, 01/08/2018 - 06:08 Permalink

Under the normal rules as in 2008 the federal reserve would come in and bank-roll the entire European mess? In 2008 it was $17 TRILLION in secret loans. Duestche Bank alone thogh may owe $300 trillion.. It has to reset. No reset ever is happily complete without a bank bail-in (account desposit seizures..) The game changer is Trump who will not backstop Europe while they spit on him.. He'll let  them tank. But ECB will  print to oblivion so this could go on for years..  After the global default we can probably have a big ass war.. 

In reply to by JIMSJOE2

bitzager Throat-warbler… Sun, 01/07/2018 - 20:37 Permalink

There is no reason to buy BTC, other than pay for something (even this is a real pain, paying $20++++ in fees to miners), - for anything else there is plenty of Crypto which has much better technology and options to x100 principal... BTC already did it's x100.. for now it's over... better switch to something else.... Otherwise it's all depends on the FED, how long they going to be tolerate this sh*t...

In reply to by Throat-warbler…

OH10DESERTER bitzager Sun, 01/07/2018 - 21:23 Permalink

For realz, I'm looking for an actual functioning decentralized currency.  XRB maybe, until it gets burned.  Privacy is also necessary.  From everything I've ready PoS is out, b/c of privacy issues.  For me the truly decentralized, private digital currency does not yet exist.  Until we can get to the point of 4000 tx/s + privacy, we've got a bunch of shit coins.



In reply to by bitzager

DC Beastie Boy 0valueleft Sun, 01/07/2018 - 22:15 Permalink

BTS is great, its just not on Bitfinex so it doesn't get pumped like all the other alts.  It's a long term hold, it sold off to 5 cents after being delisted from Bittrex and now 80 cents.

Also, Openledger Dex volume has picked up significantly.  I like the fact you can use the exchange right from your computer and trade into tons of other markets, not need to log into silly exchanges.

I'm being fucked several hundred bucks from another scam exchange

In reply to by 0valueleft