Bitcoin Shorts Plunge: Hedge Funds Exit-Bull or Bust?

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Hedge funds, those impeccably dressed little foxes of the finance menagerie, have pruned their short stance on Bitcoin CME futures from a theatrical $444 million in August to a demure $78 million by mid‑January-an eighty‑two percent pruning that could be read as a bullish aria or a bearish shrug, depending on the other players in the wings.

Based on the attached chart, this retreat in leverage funds’ short exposure seems to have shadowed a local price bottom; a whisper in the marketplace’s ear that may be construed as bullish for BTC, or merely a coquettish nod from a capricious market to its own vanity.

Bitcoin basis trade collapses to a mere 5%

Yet these moves by leveraged funds are a zero-sum waltz for Bitcoin: they buy spot U.S. spot ETF and short CME Futures to pocket the price differential, a nimble little dance practitioners call the basis trade or yield.

This yield, once a handsome hobby, has sagged from nearly 10% to a shy 5 in these past months as BTC has shed more than 30%, making the pirouette less enchanting than before.

Some analysts say these funds will not only pare their short exposure when the yield falters, but will retreat from spot BTC ETFs as well. Such absent-minded departures could well drive ETF outflows, like guests slipping away mid-reception.

Throughout this week, ETFs endured a cumulative outflow of $1.33 billion, reversing the ardent January cheer that had lifted BTC to near $98k.

The 30‑day average ETF flow flipped negative again, further underscoring a general shrug from institutions toward BTC.

In plain speech: cutting short positions isn’t a crowd‑pleaser for a rally unless some robust spot ETF inflows decide to waltz back onto the floor.

That said, this week’s risk-off mood among investors was not entirely unreasonable, given geopolitical escalations and the Japanese bond tumult.

What’s next for BTC?

Recent tidings, however, suggest these risk factors have eased somewhat, leaving the coming week less tempest-tossed in macro affairs, save for the Federal Reserve’s January 28 decision looming like a mood-lit chandelier.

One of the grand risks-the ascent of Japan’s bond yields-has reportedly drawn the Fed’s attention, with analysts whispering about intervention to buttress the yen. Intriguingly, the yen delivered its most dramatic intraday flutter on January 23 amid such speculation.

For BitMEX founder Arthur Hayes, this mitigation translates to a single thing-likely a liquidity injection that should give BTC’s price a little buoyant breeze.

A similar glow of potential recovery for BTC in the short term was echoed by Swissblock analysts. They noted BTC had left the “high risk” zone ahead of Japan’s mitigation plans and easing EU‑US tensions on Greenland, while momentum and the risk landscape resembled a springtime preview of Q2 2025 pre‑rally.

“Momentum is strengthening as we exit a massive high-risk environment, a shift similar to what we saw in April before the bull run.”

At press time, the crypto asset hovered near $89.7k.

Final Thoughts

  • Leveraged hedge funds have cut short exposure to Bitcoin CME Futures by 82%
  • BTC’s momentum and risk environment mirrored Q2 2025 pre-bull run setup, but ETF demand has eased.

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2026-01-24 15:44