Bitrabo Editorial
Bitcoin futures are seeing a notable increase in net short interest from leveraged funds recently, attributed mainly to the rise in popularity of the basis trade strategy rather than being indicative of bearish sentiment among hedge funds.
Spot Bitcoin ETFs Driving Basis Trade Strategy Adoption
The basis trade focuses on exploiting differences between spot and futures markets and has contributed significantly to the surge in short interest across almost 18,000 Chicago Mercantile Exchange (CME) Bitcoin futures contracts, as per Bloomberg reports.
With over $7.5 billion in net-short futures currently, the basis trade has gained momentum, particularly following the introduction of spot Bitcoin exchange-traded funds (ETFs) in January.
While the basis trade’s popularity grows, spot Bitcoin ETFs have also seen increased demand, collectively holding more than $61 billion in assets, according to Bloomberg data.
Senior analyst Vetle Lunde warns against solely attributing the rise in ETF flows to the basis trade, emphasizing that organic directional demand plays a crucial role.
Dynamic Market Sentiment Reflected in Short-Term Data
The basis, representing spot and futures price differentials, has fluctuated, hovering between 11% and 16% in recent weeks before decreasing to approximately 6%, notes Lunde.
Despite the basis trade’s popularity, short-term ETF flow data may not always accurately reflect investor interest in the asset class, as seen by recent outflows of $65 million on Monday despite $15.6 billion in net inflows since January.
Amid the evolving cryptocurrency market landscape, the interaction between Bitcoin futures, spot ETFs, and the basis trade offers crucial insights into investor behavior dynamics.
The notable increase in Bitcoin futures’ short interest driven by the basis trade underscores the advancing complexity of trading strategies in the cryptocurrency realm.
Currently, Bitcoin, the leading cryptocurrency, is trading at $66,270, showcasing a 5% price decline in the last 24 hours with expectations of further downtrend towards the $65,000 support level at $66,300.
Featured image from Shutterstock, chart from TradingView.com