Hedge Funds May Use Futures To Trade Against Bitcoin
Bitcoin futures may provide a way for hedge funds to place massive short contracts against the cryptocurrency.
The addition of Bitcoin futures contracts to a number of exchanges in the past month has been hailed as a massive bull signal, but, according to some analysts, the addition may actually provide a platform for a huge pending short market. The potential that the cryptocurrency may fall could lead to massive numbers of investors taking short positions.
According to a recent Bloomberg article, the massive pressure for short selling may come from hedge funds wanting to take advantage of what they see as the greatest shorting opportunity in history. According to cryptocurrency investor Lou Kerner, a partner at Flight VC:
“[It may be] one of the greatest shorting opportunities ever. You have a lot of zealotry, and a lot of people, including me, who think it’s the greatest thing to ever happen in the history of mankind. You have a lot of people who think it’s a bubble and a Ponzi scheme. It turns out both of them can’t be right.”
Crash or squeeze?
Whether long or short, however, the addition of Bitcoin futures into the marketplace will have a profound effect in bringing mainstream money into the picture. No matter what happens with the price, the general Bitcoin ecosystem should stabilize substantially.
However, should a large amount of money move into the short position, and the price rise, it could result in the greatest short squeeze of all time as well. A short squeeze occurs when a heavily shorted stock or commodity rises in price, forcing short contract holders to ‘squeeze’ out of their short positions at a loss and driving prices further up with the increased pressure.