Bitcoin is currently facing pressure at spot rates with no relief in sight after a flash crash on June 6 that saw prices sharply reverse from the $72,000 level. Analysts have pointed out the significance of the liquidation level, which Bitcoin prices have historically recoiled from. A breach of this level could trigger a short squeeze, but hedge funds and Wall Street firms are increasingly taking short positions on Bitcoin futures contracts in anticipation of a price plunge. Although they may be net long on the spot market, this risky strategy could result in massive losses if prices unexpectedly spike. With $12 billion worth of short positions on BTC futures between the current price and all-time highs at $74,000, hedge funds are net bearish, and this move could backfire spectacularly.
While hedging tactics like shorting futures and buying spot markets are common in traditional finance, they may not work as expected in the volatile world of Bitcoin, an asset class that operates outside the traditional finance system. The strategy could lead to unexpected losses, especially given Bitcoin’s unpredictable nature. Despite selling pressure causing Bitcoin to drop from $72,000, buyers have yet to reverse the losses from June 6, indicating that the short-term trend is southwards. A break below $66,000 would erase gains made on May 20, signaling a shift in the trend.
Despite the current challenges facing Bitcoin, there is optimism among buyers as all spot Bitcoin exchange-traded fund (ETF) issuers in the United States have been on a buying spree. In the first week of June, these issuers added 25,729 Bitcoin, equivalent to roughly two months’ worth of mined coins and the highest weekly buying activity since mid-March when BTC reached all-time highs of around $73,800. While the future remains uncertain, this buying activity indicates confidence in the long-term potential of Bitcoin and suggests that buyers are positioning themselves for potential gains in the future.
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