A rare CME shift: Hedge funds abandon structural shorts to bet on a bitcoin rally

A rare CME shift: Hedge funds abandon structural shorts to bet on a bitcoin rally

Markets

A rare CME shift: Hedge funds abandon structural shorts to bet on a bitcoin rally

CME leveraged funds turn net long as weak futures yields undermine the once-popular basis trade.

By

James Van Straten

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Edited by

Jamie Crawley

51 min ago

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BTC: CME Futures Net Position by Leverage Funds (CryptoQuant)

Summary

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CryptoQuant CEO Ki Young Ju says leveraged funds are now net long CME bitcoin futures, a rare shift after years of structural short positioning.

Leveraged funds have historically remained net short CME Bitcoin futures because of the basis trade of buying spot bitcoin or ETFswhile simultaneously selling futures.

With the futures basis yielding less than U.S. Treasuries, basis trades are unwinding as bitcoin rebounds from $58,000 to around $65,000.

Hedge funds trading bitcoin

BTC

$

64,931.10

futures on the Chicago Mercantile Exchange have turned net long, according to

Ki Young Ju

, CEO of blockchain data analytics firm CryptoQuant.

The rare positioning shift suggests professional traders are increasingly betting on bitcoin prices rising.

“Hedge funds on CME have flipped net long on bitcoin futures, a rare shift after years of structural short positioning driven by the basis trade. You cannot run a traditional carry trade with an aggregate net-long futures position. The suits are now betting on bitcoin’s upside,” Ki Young Ju said.

Leveraged funds have historically remained net short CME Bitcoin futures because of the basis trade. In this market-neutral strategy, traders buy spot bitcoin or exchange-traded funds (ETFs) while simultaneously selling futures. Profit comes from the premium between futures and spot prices narrows, rather than from bitcoin moving higher. This activity has kept hedge funds’ reported futures positioning negative for years.

However, the trade has become less attractive. The annualized three-month bitcoin futures basis

has fallen to approximately 3%

, below the roughly 3.8% yield available on two-year U.S. Treasury notes. Traders have less incentive to maintain basis positions, with lower returns and additional funding, margin and execution risks

Bitcoin is now trading above $65,000 after bottoming around $58,000 on July 1. The move from structural futures shorts to an aggregate net-long position therefore supports the recovery narrative. While some of the change may reflect basis traders closing shorts, crossing into positive territory indicates that CME leveraged funds’ futures longs now exceed their shorts, a potentially important institutional bullish signal.

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