COT Report Analysis: Institutionals Ramped up Short Positions Before Crash


The Commitments of Traders report, issued weekly by the Commodity Futures Trading Commission, is an important tool in assessing the moods of large market players and getting a bigger picture of the financial markets in general. Given the turmoil in the markets, this gives the additional bits of information needed to better understand the nature of the crisis and its potential outcomes.

Analyst Dmitry Perepelkin reviewed the latest COT reports and shared his findings in the Russian-language piece for ForkLog. Here is the translation of the latest piece covering the reports between February 25th and March 10th, followed up by a quick overview of Dmitry’s conclusions regarding the previous reports.

Crash: February 25th to March 10th

Between the 1st and 8th of March, the market has indeed stuck in the $8,300–9,100 range. Still, soon it was hit by the informational panic around the COVID-19 virus. Before, Bitcoin had a negative correlation with the world’s indices, but the epidemic pushed the parameter nearly to the positive limit.

Dynamics of the Bitcoin price and S&P 500 index

Dynamics of the Bitcoin price and S&P 500 index

Importantly, during the times of global panic, all the main markets fall. The psychology of traditional and cryptocurrency traders is the same since all the basic principles of risk management are the same.

Bitcoin crashed harder than stock indices because of several reasons. Stock market traders were forced to look for liquidity to support the marginal requirements, buy assets at the bottom, or exit into the U.S. dollar entirely. To do so they had to sell off the riskiest assets like Bitcoin. Liquidation of marginal positions and triggered stop-losses enhanced the effect.

BitMEX’s liquidation statistics

BitMEX’s liquidation statistics

Between February 25th and March 3rd, a lot both long and short positions in the Leveraged Funds section were closed. Most of the short positions were fulfilled before February 25th so people were taking their profit. Unsurprisingly, long positions got closed because the market was going down.

COT report, March 3rd

COT report, March 3rd

Between the 3rd and 10th of March, when Bitcoin went from $9,400 to $7,800, asset managers added another 166 short positions, skewing long-short ratio towards 3 to 1. Additionally, 48 long contracts were closed.

COT report, March 10th

COT report, March 10th

Leveraged funds and asset managers ramped up their positions in anticipation of a “black Thursday.” The COT report for the week leading up to March 10th was published only on Friday, after the record-breaking crash. This means that the data aren’t relevant to the current market analysis.

Personally, I think that for true hodlers this is a good moment to buy some more Bitcoin. We shouldn’t forget about the long-term growth of Bitcoin. Those who agree with such views should see the current price of BTC as a sale with hefty discounts.

The Bitcoin price chart may help illustrate the point about the long-term trend.

Bitcoin Liquid Index chart

Bitcoin Liquid Index chart

One of the important rules of every market is that you should base trades on the arguments given by the market and not rely on sheer luck. Otherwise, you start nudging facts towards expectations.

Build-up: 4th to 25th of February

The previous analysis shows that leveraged funds were actively opening short positions, despite the apparent market growth. There were 1415 new short positions between the 4th and 11th of February. Between February 11th and 18th, this section gained 685 new short positions, while asset managers dropped 107 long positions.

The analyst noted that the increase in short positions took place amidst the then-growing market when the Bitcoin price was in the $9,100–10,450 range. At that time he suggested that it has to do with the fact that Bitcoin didn’t manage to break the $10,500 level.

Futures analysis is just a part of complex analysis. You shouldn’t make trading decisions based on futures analysis alone. This review is of analytical nature and doesn’t provide trading recommendations. The Bitcoin market is highly volatile, so you shouldn’t forget about risk management, hedging, and diversification. 

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