Hedge funds unwind Bitcoin basis trade as CME net shorts fall 89%

One of Wall Street’s favorite Bitcoin trades is quietly being packed away. Hedge funds have largely unwound the Bitcoin basis trade, cutting their net short position in CME Bitcoin futures by 89% from the peak they hit in December 2024.

As of November 3, 2026, leveraged funds held a net short of 2,591 contracts, or approximately 12,955 BTC. That is the smallest such position since February 2023.

The trade that stopped paying

The basis trade works a bit like buying concert tickets at face value and simultaneously selling them for more on a resale site. The profit comes from the gap between the two prices, not from whether the band is any good.

In Bitcoin terms, a fund holds spot exposure, often through an ETF, and shorts CME futures at a premium. The fund doesn’t care much where Bitcoin goes next. It collects the spread as the futures contract converges with the spot price at expiry.

That spread, known as the basis, is the whole point. And it has shrunk. The CME Bitcoin futures basis fell to just 4.8% annualized, which offers minimal excess return over US Treasury yields.

Put plainly, funds can earn nearly the same thing by parking cash in government debt, with none of the operational hassle, margin calls, or crypto headline risk. When the reward for complexity shrinks to almost nothing, sophisticated investors tend to stop bothering.

ETF holdings and open interest follow the same path

The futures side is only half of the picture. A group of multi-strategy hedge funds, including Millennium Management and Brevan Howard, also cut back sharply on their spot Bitcoin ETF exposure.

Nine hedge funds trimmed about 68,000 BTC in spot Bitcoin ETF exposure between September 2025 and June 2026. That stake was valued at around $5.4 billion.

CME activity has thinned out as well. Open interest on CME Bitcoin futures fell to approximately 17,527 contracts, or about 87,635 BTC, by early November 2026. Trading volume has also declined.

A brief detour into net long territory

One detail stands out. During August 2026, leveraged funds briefly flipped to a net long position on CME Bitcoin futures for the first time.

That is unusual. Leveraged funds have long been the structural short sellers in this market, largely because of the basis trade. The move has been described as a potential signal of bullish sentiment toward Bitcoin.

Background: how the basis trade got so big

The basis trade grew into a dominant force after spot Bitcoin ETFs opened a cleaner path for institutions to hold the long leg in a regulated wrapper. Pairing those ETF shares with CME futures shorts gave funds a relatively tidy way to earn yield from Bitcoin’s futures premium.

The peak in December 2024 marked the high point of that enthusiasm. Since then, the premium has compressed, ETF stakes held by multi-strategy funds have been reduced, and the short side of the market has thinned dramatically.

The current net short level is now the lowest since February 2023. That effectively rolls the clock back to a period before the ETF-driven carry boom took hold.

What this means for the Bitcoin market

For starters, it complicates how investors read ETF flow data. A meaningful share of past ETF buying came from funds that were hedged and had no directional view on Bitcoin. As that activity fades, ETF flows may become a cleaner signal of genuine demand rather than arbitrage plumbing.

The reverse is also true. Some of the ETF outflows tied to the unwind may not reflect bearish sentiment at all. Funds selling ETF shares while closing futures shorts are dismantling a spread trade, not necessarily betting against Bitcoin.

The key variable to watch is the basis itself. At 4.8% annualized, the trade barely beats Treasuries. If the premium widens again, the economics of the carry trade could return, and so could the hedge funds.