- A lucrative trade has reemerged as Bitcoin hits new highs.
- In May, Millennium bought up $2 billion in Bitcoin ETFs, what experts at the time said was probably the basis trade.
- Traders have bought up billions in ETFs post-elections.
Market euphoria surrounding Donald Trump’s election victory has reignited one of hedge funds’ most popular crypto trades.
It’s the same one, probably, that the $60 billion trading giant Millennium Management piled into in May when it bought roughly $2 billion in various Bitcoin ETFs.
Now, it’s as lucrative as ever. It’s called the Bitcoin basis trade.
The basis trade becomes possible when surging demand drives the price of Bitcoin futures higher than the price of spot Bitcoin exchange-traded funds. Big funds like Millennium use lightning-fast algorithms to seize on the price gap and pocket returns.
The price difference between the two assets this week reached as high as 17% on the Chicago Mercantile Exchange, data from CF Benchmarks shows. That’s about as wide as when Bitcoin ETFs first launched in January.
“The basis is a good indication of sentiment in the market,” Thomas Erdösi, CF Benchmarks’ head of product, told DL News. “We can deduce from the sustained blowout in the basis that the market feels very upbeat about Bitcoin upward price action.”
But the basis trade is often a market-neutral strategy — it allows traders to make money on the inefficiencies without betting on any eventual direction in the price.
Trump’s triumph
Since Donald Trump won the presidential race last week, Bitcoin has reached one record high after another.
Since November 5, Bitcoin has risen more than $18,000 — a 27% increase.
“The sideways crypto market has been building up like a pressure cooker for the last six months,” Timo Lehes, co-founder of Swarm, told DL News. He added that the speed of the move is surprising.
Erdösi pointed to the increase in spot Bitcoin ETF inflows as evidence of institutions picking up this trade.
On November 7, BlackRock’s Bitcoin ETF saw record inflows of $1.1 billion, according to data from Farside. On Monday, IBIT notched its third-highest record for inflows, raking in almost $757 million.
In the four days after the election, spot Bitcoin ETFs saw nearly $3.5 billion in total inflows, said Nate Geraci, president of the advisory firm ETF Store.
Liam Kelly is DL News Berlin-based DeFi Correspondent. Got a tip? Email at liam@dlnews.com.