New data from market research firm Kaiko Analytics has revealed that hedge funds are shorting Bitcoin (BTC) and Ethereum (ETH) on the Chicago Mercantile Exchange (CME).
In a new research post, the crypto analytics platform noted that although hedge funds are net short both BTC and ETH on the CME, that doesn’t mean the funds are bearish on the crypto asset, but rather engage in basis trading, a type of arbitrage trading strategy.
A net short position means that hedge funds have accumulated more short positions than long positions in the cryptocurrency derivatives market.
Kaiko Analytics says:
“This doesn't necessarily mean that these funds are bearish on cryptocurrencies, but rather that they are more likely to be engaged in basis trading, one of the most popular forms of trading in cryptocurrencies.”
Basis trading is a type of arbitrage strategy that takes advantage of the price difference between two similar assets – in this case, the price difference between spot and futures BTC or ETH. Hedge funds are likely “long basis” right now, meaning they are shorting futures while holding spot BTC or ETH.
This protects you from price fluctuations and guarantees a specific selling price in the event of volatility in the underlying asset.Long basis trades are most effective when prices are in contango, meaning the futures price is above the spot price.As expiration approaches, the two prices tend to move closer to each other.
While there is no data to say for certain that this is the reason for hedge funds' net short positions, it is the most likely explanation for the large short positions held by these sophisticated traders, who rarely short unhedged.”
At the time of writing, Bitcoin is trading at $69,251, with ETH being worth $3,750.
Don't miss out on the latest news – subscribe to receive email alerts directly to your inbox
Check price trends
follow me XFacebook, Telegram
Browse the daily Hodl mix
 
Disclaimer: Opinions expressed on The Daily Hodl are not investment advice. Investors should do their due diligence before making high-risk investments in Bitcoin, cryptocurrencies and digital assets. Transfers and transactions are at your own risk and you are responsible for any losses incurred. The Daily Hodl does not recommend buying or selling cryptocurrencies or digital assets and is not an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.
Featured Image: Shutterstock/nullplus
