Hedge Funds Shift to Long Positions on Bitcoin as CME Futures Change

Markets Hedge Funds Shift to Long Positions on Bitcoin as CME Futures Change

Leveraged Funds Transition to Net Long Amid Declining Futures Yields

By James Van Straten | Edited by Jamie Crawley 51 min ago 2 min read Make preferred on

Key Highlights:

• Ki Young Ju, CEO of CryptoQuant, indicates that leveraged funds have shifted to net long positions on CME bitcoin futures, a significant change after years of maintaining structural shorts.
• Historically, these funds were net short due to a basis trading strategy involving the simultaneous buying of spot bitcoin or ETFs while selling futures.
• With futures basis yields falling below U.S. Treasury rates, basis trades are losing appeal as bitcoin's price rises from $58,000 to approximately $65,000.

According to Ki Young Ju, CEO of blockchain analytics company CryptoQuant, hedge funds involved in bitcoin BTC$64,931.10 futures on the Chicago Mercantile Exchange have transitioned to a net long stance. This shift is noteworthy as it marks a change from their previous structural short positions.

“Hedge funds on CME have flipped net long on bitcoin futures, a rare shift after years of structural short positioning driven by the basis trade. You cannot run a traditional carry trade with an aggregate net-long futures position. The suits are now betting on bitcoin’s upside,” stated Ki Young Ju.

Traditionally, leveraged funds have kept net short positions in CME Bitcoin futures due to the basis trade, a strategy that involved a market-neutral approach of buying spot bitcoin or ETFs while selling futures. This method allowed traders to profit from the narrowing premium between futures and spot prices, rather than relying on the upward movement of bitcoin. Consequently, hedge funds have reported negative futures positioning for an extended period.

However, this trading strategy has lost its attractiveness. The annualized basis for three-month bitcoin futures has dropped to about 3%, which is lower than the approximately 3.8% yield offered by two-year U.S. Treasury notes. This decline diminishes the incentive for traders to maintain basis positions, particularly given the risks associated with funding, margin, and execution.

Currently, bitcoin is trading above $65,000 after a low of around $58,000 on July 1. The transition from structural shorts to a net long position aligns with a narrative of recovery. Although some of this shift may stem from basis traders closing their shorts, the net-long position indicates that CME leveraged funds now hold more long positions than shorts, signaling potential institutional bullishness.