Crypto Hedge Funds Are Now Making a Positive Return to Bitcoin

Key Points:

• Following a significant liquidation, crypto hedge funds are quickly returning to bullish bets.
• Increased buying interest in Bitcoin, as evidenced by Coinbase’s bid-to-offer ratio, is driving the market.
• Despite the rebound, short-term hedging remains high, with more puts than calls on offshore exchanges.

After one of this year’s largest liquidations in bullish crypto positions, crypto hedge funds are re-entering the market aggressively with optimistic bets.

Read more: Bitcoin Spot ETFs See $168M Outflow on August 5 Amid Market Volatility!

Crypto Hedge Funds Bounce Back After $1.1 Billion Liquidation

According to Bloomberg, around $1.1 billion of cryptocurrency positions were liquidated on August 4, making it one of the biggest selloffs this year. At one point during that plunge in the market, Bitcoin fell as much as 17%, while Ethereum, at its lowest, fell more than 20%. Both cryptocurrencies regained ground on Tuesday, with Bitcoin trading around $56,850.

Whereas things looked gloomy a few weeks ago, participants—from offshore exchanges to U.S. over-the-counter desks—have started feeling more optimistic.

The buying of call options in Bitcoin at strikes as high as $90,000 for later this year has increased. A key driver of this renewed optimism in the underlying is increased demand for Bitcoin on Coinbase, whose bid-to-offer ratio indicates robust buying interest.

High Hedging Continues Amid Optimistic Year-End Forecasts

According to Yevgeniy Feldman, head of research at SwapGlobal, notwithstanding the heavy liquidations, crypto hedge funds and institutional investors have started re-building bullish positions by buying call spreads for Bitcoin and Solana. That is reflected in the rising interest in Bitcoin call options.

Nevertheless, short-term hedging remains very strong, with a greater put-to-call ratio on offshore exchanges like Deribit, suggesting continued caution among retail investors who use options to hedge.

The second half of the year outlook is kept at least partially bullish due to the prospect of a second US presidency of Donald Trump, who is known to be very pro-cryptocurrency.