Bitcoin net shorts have reached a record high of $7.5 billion due to the increasing popularity of a market-neutral trading strategy called the basis trade. This surge in short interest is primarily seen in around 18,000 CME Bitcoin futures contracts.
The basis trade strategy aims to profit from differences between spot and futures markets. Hedge funds are particularly interested in this strategy, with over $7.5 billion in net-short futures currently held by them, according to Ravi Doshi, the head of markets at prime broker FalconX, as reported by Bloomberg.
The basis trade has gained momentum in the cryptocurrency space following the introduction of spot Bitcoin exchange-traded funds (ETFs) in January. Traders can now buy these ETFs and sell futures at higher prices, taking advantage of price disparities.
Despite the popularity of the basis trade, it should not be mistaken as the main driver of inflows into ETFs. Vetle Lunde, a senior analyst at K33 Research, emphasized that the organic directional demand is the primary factor behind the strong ETF flow, not traders looking to capitalize on futures premium arbitrage.
The basis, which indicates the difference between spot and futures prices, has fluctuated over time, ranging from 20% to 6%. The basis trade’s popularity can complicate the analysis of short-term ETF flow data, making it challenging to assess investor interest accurately.
While BTC spot ETFs have seen significant net inflows since their launch, recent data from Farside Investors shows outflows on Monday. FalconX’s Ravi Doshi highlights that daily net BTC ETF inflows may not always reflect true organic demand for BTC.
In the past week, BTC spot ETFs have consistently received strong inflows, with a total net inflow of approximately $1.83 billion. The cumulative net inflow since the inception of these ETFs has now reached a record high of about $15.7 billion, reflecting a growing demand for Bitcoin assets.
