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Bitcoin flat despite high ETF inflows as hedge funds short BTC at record levels

Jun. 11, 2024

Futures selling pressure offsets potential ETF-driven price increases.

Bitcoin’s spot price remains stable despite substantial inflows into Bitcoin ETFs over the past 19 days, as large hedge funds simultaneously buy ETFs and sell futures contracts, offsetting the potential impact of the inflows on the spot price.

Crypto investment firm CMS Holdings recently tweeted about this phenomenon, stating:

I love a good conspiracy to blow up btc shorts but this ain’t it

It’s entities buying etf and selling futures to roll down basis some primes are letting entities net that

This is also why etf inflows are high but spot is relatively unch

Have a good weekend https://t.co/KN7YkNID9s

— THE CMS (@cmsholdings) June 8, 2024

According to the Commodities Futures Trading Commission Commitments of Traders report, hedge funds have increased their net short positions in CME standard Bitcoin futures contracts to a record high of 18,175 contracts.

This surge in short positions is likely related to the basis trade, where hedge funds buy Bitcoin through ETFs, which closely track the spot price, while simultaneously selling futures contracts.

This strategy allows hedge funds to potentially profit from the narrowing of the price gap between futures and spot prices, especially as futures contracts approach expiration.

Prime brokers’ willingness to accept Bitcoin ETFs as collateral has potentially facilitated larger scale basis trades said the research arm of crypto derivatives exchange BitMEX.

Yes, we agree with @cmsholdings that the CME commitment of traders report increase in short positions in the hedge fund catagory is related to the basis trade

A key driver for this is that prime brokers are probably more willing to allow usage of the Bitcoin ETFs as collateral

— BitMEX Research (@BitMEXResearch) June 10, 2024

Despite substantial inflows into Bitcoin ETFs, the selling pressure from the futures market counteracts any potential upward movement from ETF purchases.

The fluctuations in futures Open Interest (OI) indicate a different sentiment among traders who may be hedging or speculating on short-term price movements.

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