When most people are bullish on Bitcoin and it has become a crowded investment, is it a good time to short Bitcoin?
A survey among the top fund managers of the world provides a good idea of where the smart money is going. The Bank of America Merrill Lynch Fund Managers survey of September 2017 indicates that Bitcoin is the most crowded investment right now, with a large proportion of bullish bets.
Why the BAML survey matters
The BAML survey was conducted from Sept. 1 to Sept. 7, and is a respected survey on Wall Street. More than 200 fund managers with assets under management of around $629 bln participated in this exercise.
Hence this survey is a very good indicator of where the smart money is flowing. While Wall Street veterans have made contrasting remarks on the prospects of Bitcoin, fund managers seem to be believe that a lot of people are bullish on Bitcoin.
“26 percent of the fund managers surveyed believe that Bitcoin is the most crowded investment right now.”
Bitcoin’s phenomenal returns
Bitcoin has given phenomenal returns in 2017, rising from ~$950 at the start of the year to a peak of $5000, before falling to ~$4200 currently.
The causes have been many – the activation of SegWit which is expected to reduce congestion on the network, friendly regulations in Asian countries, institutional investors considering Bitcoin as a viable alternative asset class, and so on.
There is a fear that there could be government action against Bitcoin, particularly in China, and that has caused the price to retrace this month. Bitcoin enthusiasts believe that this is a blip in the long term price trajectory of Bitcoin, and it will continue to appreciate in value as adoption increases.
Other hot trades
Other hot trades according to the BAML survey include long trades on the Nasdaq Composite Index (22 percent) and shorting the dollar (21 percent).
Being long on the Nasdaq was deemed to be the most crowded investment in the last four surveys held during May – August 2017.
Both trades have done well in 2017, with the Nasdaq Composite rising ~20 percent in 2017.
Is it a good time to short Bitcoin?
When most people are bullish on Bitcoin and it has become a crowded investment, is it a good time to short Bitcoin?
Being a crowded investment does not indicate that the rally in that asset class might be over. The Nasdaq Composite Index has continued to perform well in 2017, despite being viewed as a crowded trade for the most part of this year.
Even people who oppose Bitcoin and call it a fraud (like Jamie Dimon) do not short Bitcoin, because there is no telling how high it will go. So shorting Bitcoin might be nothing but a gamble, which could turn out to be very expensive.
