Key Points
- Bitcoin basis trade, preferred by hedge funds and asset managers, has seen a premium double in October.
- The overall Bitcoin Open Interest rate surged to an ATH of $43 billion, indicating significant institutional interest.
Bitcoin’s basis trade, a strategy where investors buy spot Bitcoin (BTC) ETF and sell CME (Chicago Mercantile Exchange) futures contracts at higher prices, has seen a significant resurgence.
This method is typically favored by hedge funds and asset managers.
Surge in Basis Trade
The basis trade premium doubled in October as BTC crossed the $70K mark, as indicated by the Futures Annualized Rolling Basis metric.
In mid-September, the premium was at 6.2%; however, it stood at 12% as of the end of October, demonstrating a roughly 2x surge in a few weeks.
Fed Rate Cuts and Implications
BTC analyst, James Van Straten, suggests that the rising BTC basis trade could be linked to ongoing Fed rate cuts.
He argues that lower interest rates make BTC basis trade a more attractive option with higher returns than traditional opportunities.
During the peak of market froth in March, when BTC reached its all-time high (ATH) of $73.7K, the premium topped 14%.
This was followed by funding rates peaking above 30%.
However, Mathew Sigel, VanEck’s head of digital assets research, notes that the current market does not show signs of overheating as it did in March.
The overall BTC Open Interest (OI) rate surged to an ATH of $43 billion, with CME futures dominating at $12.69 billion.
This suggests significant interest from institutions.
The CME Futures market positioning shows that hedge funds are driving the widening basis trade premium.
Hedge funds had a net short position of $6.84 billion, indicating substantial hedging against the BTC price decline.
This could potentially widen the basis between spot BTC and futures prices and attract even more players.
However, a sharp drop in the premium might signal bearish sentiment and a potential BTC pullback.
At press time, BTC was valued at $72.2K, up 13% in October.
