Betting Against Bitcoin: Hedge Funds are Targeting Price Falls
Hedge funds are rapidly expanding into the crypto market with announcements from CME Group Inc., Cboe Global Markets Inc., and Nasdaq Inc., elevating cryptocurrencies into an emerging asset class. These hedge funds have passively watched the cryptocurrency system buildup over time with incentive markers in the price index volatility and steady comparative variations among altcoins and cryptocurrencies. Now, this high-risk venture will take its chances with Bitcoin Futures services provided by the aforementioned once Chicago Mercantile Exchange’s futures market open, targeting price-falls of cryptocurrencies to maximize investment returns.
A business professor at the University of Houston, Craig Pirron, opined that “having this instrument that makes it easier to short might keep the bitcoin price a little closer to reality as the futures reduce the frictions of going short more than they do of going long, so it’s probably net bearish.”
Since its creation in 2009, Bitcoin has grown exponentially. Early investors who invested in the digital currency have reaped over 50,000% ROI. Comparatively, investment of the same amount in the S&P 500 stock index, with reinvested dividends inclusive would not yield as much. The gap between the two investment is shockingly outrageous.
“One of the greatest shorting opportunities ever”, declared Lou Kerner, partner at Flight VC, “…it’s the greatest thing to ever happen in the history of mankind.”
The recent volatility in bitcoin prices has shown sporadic increases by a factor of 72% with a sharp dip of 20% in the month of November after topping $11,000 USD within a 90-minute window. The price has long recovered and has steadily increased to trading above $11,332.01.
BlockTower Capital’s former portfolio manager and co-founder, Ari Paul, claims that “While some traders are eager to be able to short bitcoin and will do so when the futures are launched, there is a far greater amount of money eagerly awaiting the futures as a vehicle to go long”.
‘Small Potatoes’
With bitcoin’s over 90% surge this year, reactions have been elicited from wall street. JPMorgan Chase & Co. CEO Jamie Dimon once alleged cryptocurrency “a fraud”; one the other hand, Thomas Lee at Fundstrat Global Advisors and hedge fund manager Michael Novogratz have taken the bullish sides, predicting more surges in bitcoin prices. Novogratz, who recently began raising $500 million to drive his investment portfolio in cryptocurrencies, stated that short trades can be risky even though he views the ability to short the currency as “an important part of the ecosystem”.
Short sellers are always banking on volatility and instability in price fluctuations, basically borrowing securities to bet on price fall and make profit off the difference when they refund the holding. Moro added that It can be risky, as bitcoin price can be difficult, with price swinging suddenly. CEO of Genesis Global Trading, Michael Moro, revealed “there are limited ways to short bitcoin today” and his cryptocurrency trading platform has lent about $20 million USD to investors to take bearish positions.
“With the existing exchanges, no one can get in and short $1 million”, Moro clarified, “It’s really small potatoes on what you can do today. The CME guys open up a new frontier.”
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