Leveraged funds have reduced their short exposure to Bitcoin [BTC] on CME Futures from $444 million in August to $78 million in mid-January – an 82% drop that could be bullish or bearish depending on other factors.
Source: CryptoQuant
Based on the attached diagram, such as a reject The short exposure by hedge funds coincided with the local price bottom and can be interpreted as somewhat bullish for BTC to some extent.
Bitcoin Basic Trade Craters to 5%
However, hedge fund movements are always zero-sum Bitcoin while buying spot US spot ETF and shorts CME Futures to make up the price difference, commonly known as basis trade or return.
This lucrative return has a significant impact decreased from almost 10% to 5% in recent months, while the BTC price fell by more than 30%, making it less attractive.
Source: Velo
According to some analysts, these funds will not only reduce short exposure as rates become less attractive, but they will also exit spot BTC ETFs. This could likely boost ETF outflows.
In fact, the ETFs saw cumulative outflows of $1.33 billion this week. This reversed the strong demand from earlier in January, sending BTC soaring to $98,000.
Source: Glassnode
But the 30-day average ETF flow turned negative again, further underscoring the overall weak institutional demand for BTC.
Put another way, hedge funds unwinding short positions won’t be enough to send BTC higher unless strong inflows from spot ETFs resume.
That said, investors’ risk appetite was justified this week due to geopolitical escalations and the Japanese bond crisis.
What’s next for BTC?
But recently updates have shown that these risk factors have declined substantially, leaving next week to be a less volatile macro week, barring the Fed’s upcoming January 28 interest rate decision.
One of the biggest risks, rising Japanese bond yields, has reportedly caught the attention of the US Fed as analysts predict potential interventions to boost the Japanese yen after its freefall. Interestingly, following this speculation, the yen recorded its biggest intraday performance on January 23.
For BitMEX founder Arthur Hayes, this is a solution meant There is only one thing: a likely liquidity injection that will likely fuel BTC prices.
Source: X/Arthur Hayes
A similarly positive backdrop for possible near-term recovery for BTC was echoed by Swissblock analysts. She marked that BTC has left the ‘high risk zone’, ahead of possible mitigation from Japan, and eased tensions between the EU and US in Greenland.
BTC’s current price momentum and risk landscape, Swissblock added, reflected the Q2 2025 pre-rally.
“Momentum is strengthening as we exit a hugely risky environment, a shift similar to what we saw in April before the bull run.”
At the time of writing, the crypto asset was trading at $89.7k.
Source: Swissblock
Final thoughts
- Leveraged funds have cut short exposure to Bitcoin CME Futures by 82%
- BTC’s momentum and risk environment reflected its pre-bull run setup in Q2 2025, but demand for ETFs has waned.