It comes as no surprise that we have been bearish on the crypto market in recent weeks. However, the market seems indifferent to our stance. The softer-than-expected US Consumer Price Index (CPI) report last Wednesday boosted risk-on assets, particularly cryptocurrencies, while the prospect of improved liquidity conditions in the economy is also set to benefit the crypto market.

Looking ahead, we see the crypto market being pulled in two directions. The macroeconomic environment, especially the imminent increase in liquidity, suggests a potential surge in prices. However, our analysis of crypto-specific factors indicates more downward movement. There are no compelling narratives for long positions. Many have bought Bitcoin anticipating substantial gains from the recent Bitcoin halving, which may soon be liquidated, as discussed in Crypto Moves #22, along with a seasonal trend working against the market, as stated in Crypto Moves #26. Additionally, the market seems increasingly euphoric, driven not only by the improved macro environment but also by last week’s disclosure of institutional holdings in US-based Bitcoin ETFs as of March 31.

Frankly, these holdings were quite disappointing, even though the market viewed them positively. First of all, most Bitcoin ETF shares are held by retail investors rather than institutions. Next, there were only two institutions that drew significant attention for their Bitcoin ETF holdings last week. The State of Wisconsin holds Bitcoin ETF shares worth over $100 million, and Millennium Management, one of the world’s largest hedge funds, revealed on Wednesday evening that they held Bitcoin ETFs worth over $2 billion as of March 31. The community celebrated this as if there were no tomorrow: “They hold more than 3% of their assets under management in Bitcoin. That is absolutely crazy. I will bid Bitcoin to the moon now.”

However, what the market seemed to overlook was that Millennium Management’s holdings were likely not a naked long position but a basis trade, involving short perpetual futures and long Bitcoin ETFs to earn the funding rate, which ranged from 30% to 140% annually in March.