Hedge funds are shifting their investment strategies, showing a decrease in Bitcoin exposure to the lowest since October 2020, which could have wider implications for the cryptocurrency market.

The latest research by ETC Group highlights a significant reduction in Bitcoin holdings by hedge funds, indicating a strategic change in their approach.

Decrease in Bitcoin Holdings

André Dragosch, Head of Research at ETC Group, reported a considerable decline in Bitcoin exposure among crypto hedge funds. In the last 20 trading days, exposure dropped to just 0.37, the lowest level since October 2020, reflecting a cautious or bearish sentiment towards Bitcoin amid its struggles to rally.

This cautious stance from hedge funds aligns with a trend of outflows from crypto exchange-traded products, indicating reduced confidence among institutional investors.

Dragosch suggested that hedge funds typically follow market trends, implying a potential gradual return to Bitcoin if the market sees an upturn.

Bitcoin’s Performance Despite Challenges

Despite challenges, Bitcoin has demonstrated resilience by nearing the $66k mark and maintaining a modest daily gain of 0.4% at $65,142. Several factors, including miner capitulation, limited stablecoin issuance, and significant ETF outflows, have contributed to the recent market downturns.

The decline in miner revenues has led to increased BTC sales to cover operational expenses, further impacting its price negatively. Additionally, a slowdown in major stablecoin issuance has hampered new capital inflows, affecting liquidity and increasing volatility.

The speculative actions like the purported sale of BTC holdings by the German government have also added to market uncertainties.

Despite these challenges, analysts point out that current price levels are close to strong support zones historically, indicating a potential for a robust rebound.

Image Source: DALL-E, Chart from TradingView