New findings from Kaiko Analytics, a market intelligence firm, reveal that hedge funds on the Chicago Mercantile Exchange (CME) are currently net short on Bitcoin (BTC) and Ethereum (ETH). However, the report clarifies that this does not necessarily indicate bearish sentiment towards cryptocurrencies, but rather reflects the hedge funds’ involvement in basis trades, which are a form of arbitrage strategy.
Being net short means that these hedge funds have accumulated more short positions than long positions in the crypto derivatives market. Kaiko Analytics explains that this is likely due to their participation in the popular basis trade, which exploits price differences between similar assets, such as BTC or ETH spot and futures. Currently, the hedge funds are “long basis,” meaning that they are selling futures short while holding spot BTC or ETH. This strategy serves to hedge against price fluctuations and ensures a specific sale price in the event of volatility in the underlying asset. The success of the long basis trade is dependent on the presence of a contango market, where futures prices are higher than spot prices. As the expiration date approaches, the two prices will converge.
While the data does not provide absolute certainty, Kaiko Analytics suggests that this is the most plausible explanation for the significant short positions held by these sophisticated traders, who typically hedge their shorts.
