Bitcoin futures are experiencing a surge in net short interest among leveraged funds, reaching over $7.5 billion in net-short positions. This is significantly higher than the peak of $2 billion in 2021.
The increase in short interest is primarily driven by the growing popularity of a market-neutral trading strategy called the “basis trade.” This strategy aims to profit from discrepancies between spot and futures prices.
The introduction of spot Bitcoin ETFs in January 2024 has made it easier for traders to execute the basis trade, as they can buy the ETFs and sell the futures at higher prices to capture the price differential.
While short interest in futures has risen, demand for spot Bitcoin ETFs has also rebounded, with the ETFs collectively holding over $61 billion in assets.
However, analysts caution that the popularity of the basis trade should not be seen as the primary driver of flows into the ETFs, as organic directional demand is the key source behind the strong ETF inflows.
The record short interest in Bitcoin futures highlights the growing sophistication of trading strategies within the cryptocurrency ecosystem, as investors look to capitalize on market inefficiencies.
Source: BITCOINST
