Key Points
- Bitcoin’s basis trade has seen a significant increase, driven primarily by hedge funds.
- The overall Bitcoin Open Interest rate has reached an all-time high of $43 billion.
The basis trade of Bitcoin (BTC) has seen a remarkable surge. This form of trade involves investors purchasing spot BTC ETF and selling futures contracts at the Chicago Mercantile Exchange (CME) at higher rates. The aim is to secure profit from the price difference. This strategy is particularly favored by hedge funds and asset managers.
Basis Trade Premium Doubles
The premium for the basis trade doubled in October as Bitcoin surpassed the $70K mark. This change was indicated by the Futures Annualized Rolling Basis metric. In mid-September, the premium was at 6.2%, but by the end of October, it had risen to 12%. This represents a two-fold increase within a matter of weeks.
According to Bitcoin analyst James Van Straten, the rise in the Bitcoin basis trade is likely linked to the ongoing cuts in the Fed rate. He suggests that the lower interest rates make Bitcoin basis trade a more attractive option with higher returns than traditional opportunities.
Market Positioning and Future Implications
The overall Bitcoin Open Interest (OI) rate has seen a surge to an all-time high of $43 billion, with CME futures accounting for $12.69 billion of this. This suggests a significant interest from institutions. However, data from The Block indicates that hedge funds, with a net short position of $6.84 billion, are driving the widening basis trade premium. This could potentially attract more players to the market.
A sharp decrease in the premium could indicate a bearish sentiment and a possible pullback of Bitcoin. At the time of writing, Bitcoin was valued at $72.2K, having risen by 13% in October.
