The crypto market feels heavy right now. Prices are sluggish. Billions of dollars are flowing out of investment funds. Yet, in a strange twist, the market’s most committed pessimists are quietly packing their bags and going home.
- Short sellers, who bet on price declines, are significantly reducing their bearish positions against BlackRock’s spot bitcoin ETF (IBIT). This retreat is happening despite the current sluggishness in the broader crypto market.
- This unwinding of short interest follows a pattern where bears tend to cover their positions during market downturns after initially shorting into strength. The movement suggests a lack of conviction for a full market collapse among pessimists.
- The short sellers’ retreat contrasts sharply with heavy net outflows from crypto ETPs, which saw $1.9 billion leave last week, primarily from U.S. spot bitcoin ETFs. However, long-horizon holders continue to accumulate assets.
I’m talking about the short sellers. These are the traders who bet on prices going down. And right now, they are backing away from BlackRock’s spot bitcoin ETF, IBIT, one of the largest and most-watched funds in the space.
It’s a curious signal. When the people betting on failure start closing their positions during a downturn, you have to ask what they see that others might be missing.
The Bears Beat a Quiet Retreat
According to Eric Balchunas, a sharp analyst over at Bloomberg Intelligence, the short interest in IBIT has taken a nosedive. Citing data from S3 Partners, he noted that the percentage of IBIT shares being shorted has “plummeted” from around 2% down to a mere fraction of that.
Now, 2% was never a gigantic number. It wasn’t a five-alarm fire of bearish sentiment. But the direction of travel is what matters. The bears are unwinding their positions, returning short interest to levels we last saw back in April.
Balchunas points out a predictable rhythm to this dance. He says traders tend to “short into strength and cover in downturns.” Think about that for a second. They wait for the price to run up, then they place their bets against it. When the market finally tumbles, they don’t double down. They cash out and disappear into the woods.
This isn’t just happening with IBIT. The pattern is visible across the entire complex of new bitcoin ETFs. It suggests a lack of conviction among the bears. They are happy to bet on a pullback, but they don’t seem willing to stick around for a full-blown collapse.
It’s a bit like a weather forecaster predicting a storm, then packing up their equipment and leaving town the moment the first raindrops fall. It makes you wonder if they believe their own forecast.
A Familiar Pattern Repeats
If this whole sequence feels familiar, it should. We saw almost the exact same movie play out this spring. Bitcoin had been on a tear, hitting a record of $109,000 on the very day President Donald Trump started his second term.
The market felt unstoppable. And just as Balchunas’s pattern would predict, the short sellers started to gather. Then, the market hit a wall. The onset of a trade war sent bitcoin plunging below $75,000 in early April.
During that painful correction, what did the bears do? They covered their shorts. Short interest across the ETFs reset to lower levels. They took their profits off the table. And what happened next? The market found its footing and rebounded by more than 50%, climbing to a new high of $112,000 just two months later.
History doesn’t always repeat, but it often rhymes. The retreat of the shorts back then was a quiet prelude to a powerful recovery. Seeing them pull the same move now, during another period of fear, is certainly telling.
When asked if he expects more downside for IBIT, Balchunas offered a dose of wisdom instead of a prediction. “I cannot predict the future,” he stated. “What I do know is this asset has a 100% track record of coming back from sometimes nasty downturns to hit all-time highs.”
That’s not a guarantee, of course. But it is a powerful reminder of bitcoin’s resilience. It’s an asset that has been declared dead more times than a villain in a horror film, only to come roaring back stronger each time.
A Tale of Two Flows
The bears’ retreat is happening against a truly ugly backdrop for fund flows. This isn’t just a small dip. We just witnessed one of the heaviest redemption cycles for crypto products since 2018.
According to data from CoinShares, global crypto exchange-traded products (ETPs) saw a staggering $1.9 billion in net outflows last week alone. The U.S. spot bitcoin ETFs were the main source of the bleeding, accounting for $1.2 billion of that total.
BlackRock’s IBIT, the fund the shorts are abandoning, led the pack in outflows, with nearly $1.1 billion exiting. On the surface, these numbers look terrible. They paint a picture of investors rushing for the exits, losing faith in the digital asset.
But there’s another story unfolding beneath the surface. Analysts report that while some money is leaving, long-horizon holders continue to accumulate. These are the buyers who aren’t rattled by short-term volatility. They are playing a different game entirely.
And there was a glimmer of hope. After a solid week of nothing but redemptions, Friday finally marked a day of positive net flows for the bitcoin ETPs. It’s too early to call it a trend, but it’s a start.
For now, bitcoin itself is treading water. It’s trading above $88,600, stuck in what traders describe as a “fragile, liquidity-thin range” between $85,000 and $90,000. The market feels uncertain, waiting for its next big signal.
Perhaps the quiet exit of the bears is that signal. Or maybe it’s just a temporary pause in the action. The only certainty is that the next move will likely be a sharp one.
