How Confident Are Institutional Investors About Bitcoin? COT Report May Offer Clues

Friday’s Commitment of Traders report will show whether recent increased longs are an aberration or sign of increasing confidence.

The most recent COT, which measures weekly trading trends among institutional investors, showed such organizations increasing their exposure to bitcoin last week, even as overall markets remained quiet.

The current report, reflecting data for the week ending Nov. 29, came as BTC was trading 1.4% higher than the prior week. Following three successive weeks of reduced BTC exposure on the Chicago Mercantile Exchange, institutional investors reversed course, adding 147 new long positions. They currently account for 33% of all long open interest on the CME, and are 80% long as a collective.

The degree and direction to which these figures change, if at all, will be a key point in tomorrow’s release.

Correlation to macroeconomic factors

As digital asset prices once again appear highly correlated to macroeconomic factors, increased exposure tomorrow would signal that institutions are relatively confident about next week’s interest rate decision, and comfortable with current BTC entry points.

Recent macroeconomic data has not surprised markets. Thursday’s 230,000 initial jobless claims aligned with forecasts. Continuing jobless claims of 1.67 million were higher than expectations for 1.6 million. The irony in the data is that higher-than-average continuing claims are likely viewed more favorably, as markets wade through a “bad news is good news” climate.

Projections for a 50-basis point increase in the fed funds rate during next week’s meeting fell only slightly to 75%, from 78% following the data release.

Long-term investors appear to be taking advantage of BTC now trading at an opportunistic discount.

On-chain metrics reflect little conviction, whether bullish or bearish, specific to short-term price movement. At the moment, signs point to an asset with minimal momentum, trading at a compelling valuation.

Bitcoin’s Market Value to Realized Value (MVRV) ratio, remains below zero, implying that BTC is undervalued. The metric has declined slightly since Dec 6.

Moreover, the three-month rolling, annualized basis for BTC remains below zero, reducing the incentive for traders to place market neutral carry trades.

When the basis is positive, traders are inclined to simultaneously buy bitcoin in spot markets and sell BTC in futures markets, pocketing the difference in yields. The same holds true for ether (ETH), whose three-month basis has been below zero since Nov 12.

Bitcoin’s chart highlights recent price inelasticity. Since Dec. 1, prices have moved a total of .001%.

Ultimately, this market favors investors with long-time horizons and significant comfort in BTC’s valuation.

Friday’s COT report will provide insight into the degree to which institutional comfort may be shifting.

Bitcoin, Dec. 8, 2022 (TradingView)

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