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Does the Bitcoin COT Positioning Suggest Anything About the Price?

Let's investigate huge record futures bets on Bitcoin. The lead chart below is from a Tweet. It tells a very misleading story.
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COT Bitcoin Large Specs 2022-05-24

COT Notes 

  • COT stands for Commitment of Traders 
  • COT reports come out on Friday, representing positions held as of the close on the previous Tuesday
  • There are two sets of COT reports, legacy reports and newer disaggregated reports with more information.

I picked up the above chart from this Tweet. 

The chart only shows one point of view, and not completely at that.

COTBase provides a limited number of free charts so let's look there for more information.

Bitcoin CME Futures CotBase 

CME Bitcoin futures positioning from COTBase

CME Bitcoin futures positioning from COTBase

The numbers from COTBase foot, netting to zero, which they must.

The numbers foot, but they do not remotely match the lead chart. 

That's because COTBase reflects legacy reporting and the lead chart represents disaggregated reporting. 

However, the lead chart inaccurately uses legacy terms. 

Current COT Data  

To further add to the confusion, one also needs to consider there are two Bitcoin contracts. The large contract is for 5 bitcoins and the smaller contract represents 0.1 bitcoin. 

The true picture nets both contracts. Fortunately, the volume of the small contract, while seemingly large in number, only has a very minor impact because of the relative weights. 

Disaggregated COT Terms

  • Dealer Intermediary 
  • Asset Manager / Institutional
  • Leveraged Funds
  • Other Reportables
  • Nonreportable positions

The lead chart says "Non-commercials' Weekly Net Position" a legacy term but matches the net disaggregated COT report "Asset Manager / Institutional

Legacy vs Disaggregated COT Report Snips

CTFC COT Bitcoin Snips From Above Links

CTFC COT Bitcoin Snips From Above Links

This seems to match the green bars (Left Scale in 000s') in the lead chart. This took me while to figure out because the term in the lead charts is wrong. 

COTbase only has a limited number of features for free, and just the legacy style reports.

Barchart.Com does not seem to have the large Bitcoin contract, only the mini contract. 

I did another search today looking for better COT charts and discovered Tradingster

Bitcoin Disaggregated COT 

Bitcoin Disaggregated COT courtesy of Tradingster 

Bitcoin Disaggregated COT courtesy of Tradingster 

That chart presents a completely different view than the lead chart. The site is nicely interactive with lots of data. 

Chart Notes 

  • Asset Manager / Institutional are net long 4,820 contracts 
  • Leveraged Funds are short 5,133 contracts 
  • Total open interest is 11,729 contracts, a new record. 

The leveraged funds have not always been correct. They were hugely short in that early 2021 runup. 

Here's the Bet in US Dollar Terms

Note See Addendum - Calculations Below Off by Factor of 5

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  • Asset Managers Long: 4,820 * roughly $30,000 = $144,600,000 
  • Leveraged Funds Short: 5,133 * roughly $30,000 = $153,990,000
  • Total Open Interest is 11,729 * roughly 30,000 = $352,170,000

How much of these bets are is hedged is a mystery. 

If only the dealers are hedged, then there is a big potential for a spectacular move. 

Imagine a whale having a big short position ready to dump futures at the opportune time straight into a plunging market. 

What's Become of Bitcoin?

It's Asset Managers vs Leveraged Funds with record or near-record bets each way. 

Yet, Bitcoiners generally believe this is about a US dollar replacement, about David (El Salvador) vs Goliath (Central Bankers) and about the meaningless ability to send bitcoin easily to Timbuctoo. 

What a Hoot!

Fundamentally and Technically Speaking

As always, the price is what the marginal buyer is willing (or perhaps forced to pay). Now, the marginal buyer/seller is likely to be leveraged hedge funds.

This post originated at MishTalk.Com.

Addendum

The speculation in Bitcoin is vastly more than I noted above.

It appears close to $16 billion is bet on Bitcoin because CME is only 11.37% of the total.

I also made a math error on CME value because each CME large contract is 5 Bitcoin as I stated, but I failed to multiply by 5.

Here's the Bet in US Dollar Terms - Revised

  • Asset Managers Long: 4,820 * roughly $30,000 * 5 = $723,000,000
  • Leveraged Funds Short: 5,133 * roughly $30,000 * 5 = $769,950,000
  • Total Open Interest is 11,729 * roughly 30,000 * 5 = $1,759,300,000

All told, all exchanges, there is about $15.7 billion in open interest futures bet on Bitcoin and I wonder how much of that is hedged. 

To repeat my key point

Bitcoiners generally believe this is about a US dollar replacement, about David (El Salvador) vs Goliath (Central Bankers) and about the meaningless ability to send bitcoin easily to Timbuctoo.

Adding one more point

We need to put everything into perspective

There are 19 million coins. Estimates are 20% lost keys. I don't know if that is accurate but it seems plausible.

That makes true supply around 15.2 billion coins

That's about $456 billion. So a $16 billion bet is about 3.5% 

Again this all comes down to what the marginal person will pay in a setup where the Fed is draining liquidity. 

Place your bets (or stand aside like I did). 

Thanks for Tuning In!

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