Bitcoin interest across retail exchanges and derivatives platforms has been surging throughout 2020. The Chicago Merchantile Exchange better known as CME is no different.
Over at CME, short positions have recently grown to the same level as the February 2020 top.
However, retail long interest remains near its all-time high. Based on this intel, could the first-ever cryptocurrency be due for another crash, or will retail traders get it right this time?
The Crypto Contrarian: Smart Money Versus Retail Investors Explained
If you’ve spent any amount of time around the cryptocurrency market, you probably have heard the term “smart money.”
Smart money is a subset of wealthy, highly experienced institutional investors who take positions in assets ahead of the herd. These positions are often taken during the most extreme peaks of a selloff, much to the contrary of retail investors who are often panic selling the exact bottom.
RELATED READING | RETAIL BITCOIN TRADERS REPEATEDLY SHAKEN OUT WHILE FOLLOWING TRENDS
It’s due to this fact why a contrarian strategy is often recommended by some of the richest individuals of our lifetime, such as Warren Buffet or Baron Rothschild.
Being greedy, while others are fearful, is what smart money does best. Retail traders often get this wrong and are exuberant as prices peak and full of panic as prices collapse.
Pro CME Bitcoin Traders Hedge Short, While Retail Goes All-In On Longs
As Bitcoin price meets its most important resistance level yet, “smart money” has opened the same amount of short exposure as the February 2020 top, according to CME data. After Bitcoin peaked it fell abruptly to under $4,000.
CME COT #Bitcoin Report Last week.
Large Speculators have laid on the same net exposure to the short side between $8.5k and $10.5k as occurred earlier in the year. pic.twitter.com/wuWugPl7T6
— f i l ₿ f i l ₿ (@filbfilb) June 8, 2020
Data also shows that these “pros” are still net-long from below, and may be opening these short positions in case of another rejection. Smart money CME traders opening shorts at resistance is a hedge building strategy.
Retail longs, however, continue to grow, nearly reaching the all-time high set just a couple weeks prior. Other similarities from the previous top include a looming golden cross of the 200 and 50 DMA.
Same as last time; 50/100 dma cross.
This time 50/200 golden cross also due to occur.
History rhymes or retail is right this time? pic.twitter.com/ZAVOdkZiRz
— f i l ₿ f i l ₿ (@filbfilb) June 8, 2020
Retail traders are often wrong, due to the herd mentality and chasing trends. Bitcoin price has rallied over 150% from lows set in March after Black Thursday.
The risk of profit-taking alone could cause the cryptocurrency to experience another crash.
But because smart money is also long, retail traders could be on the right side of the trade this time around.
Last time around, the pandemic was new, and the uncertainty, fear, and doubt over the black swan event was enough to crush all assets, not just crypto.
RELATED READING | US RIOTS SPARK GOLD RUSH, BUT BITCOIN IS THE BETTER SAFE HAVEN
Bitcoin’s halving is now in the past, and although things have improved related to the pandemic, widespread protests and riots are breaking out all over the world.
The continued uncertainty over the economy, politics, and even the future state of the police could keep Bitcoin prices at bay for a while longer, potentially until the 2020 Presidential Election.
If that is the case, these long retail traders are in for another round of destruction, while pros who hedged short will once again be in profit.
Featured image from Shutterstock.
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