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Hedge Funds Are Shorting the U.S. Dollar For the First Time in Two Years

According to data from the Commodity Futures Trading Commission (CFTC), hedge funds are net short the U.S. dollar for the first time in two years. The decline in demand for the dollar could benefit Bitcoin in the long term as it is increasingly perceived as a store of value.

Citing the CFTC’s data, Bloomberg reported that net futures positions of funds on the dollar declined to negative 7,881 contracts. Hedge funds have not been this bearish on the U.S. dollar since May 2018.

Why Strategists Are So Cautious About the Dollar

Several macro factors are seemingly causing the U.S. dollar to slump. First, the national debt of the United States continues to rise. Additionally, the global economy is recovering, while the U.S. has struggled to reopen its own economy. Lastly, investors fear inflation could weaken the dollar.

Bel Air Investment Advisors’ managing director Eric Bright told Business Insider in an interview:

Longer-term, we see dollar weakness as US debt grows, and the global recovery gains momentum. Near term, dollar may strengthen with uncertainty during flu season.

Some strategists, like BK Asset Management’s Boris Schlossberg, said the absence of a stimulus deal and the controversy around the election are placing additional selling pressure on the dollar:

“The state of political disarray is clearly weighing on the buck as the failure to produce more fiscal stimulus [and] the clearly partisan skirmishing over mail-in voting that threatens to undermine the credibility of the election are all taking their toll on the dollar.”

For alternative stores of value like gold and Bitcoin, the fading dollar could catalyze an extended uptrend. 

The sentiment around gold has improved significantly since prominent investors like Berkshire Hathaway CEO Warren Buffett built a position around the precious metal.

Over the longer term, as more institutions begin to consider Bitcoin an established store of value, the declining dollar could positively impact Bitcoin.

Bitcoin’s Image as a Store of Value

In recent weeks, Bitcoin’s price trend has followed gold more closely than the U.S. stock market.

For instance, in the last 48 hours, both Bitcoin and gold sold off in tandem while the U.S. stock market climbed upwards. Cryptocurrency trader Edward Morra commented on the development:

“Bitcoin seems to follow Gold (both are selling off today) while SPX making new ATH. Interesting dynamics.”

The correlation between gold and Bitcoin as well as the growing inflow of institutional capital into Bitcoin, as the BTC Times reported previously, show that Bitcoin continues to gain global recognition as a store of value.

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Joseph Young is a financial analyst based in South Korea. He has covered Bitcoin and the crypto market since 2013. He regularly contributes to the BTC Times, Forbes, and Cointelegraph.