ETFs
How Millennium is making a killing with BlackRock’s Bitcoin ETF – DL News
- Wall Street heavyweights Millennium Management hold $2 billion worth of Bitcoin ETFs.
- This does not mean the company is bullish on Bitcoin, institutional traders told DL News.
While some celebrated Millennium Management’s purchase of a $60 billion company, for about $2 billion in various Bitcoin ETFs, analysts say. DL News the purchase is likely part of a more complicated exchange.
Two institutional traders said DL News that Millennium had likely deployed a business strategy called “basic trading.”
The traders, who asked to remain anonymous, do not work at Millennium but have relevant experience at Wall Street trading firms.
According to them, rather than betting that the price of Bitcoin will rise further, Millennium is likely arbitrageuring the spot price of Bitcoin and its futures price on the Chicago Mercantile Exchange.
In other words, Millennium isn’t necessarily exposed to ETFs because it likes Bitcoin – it’s just taking advantage of market inefficiencies.
The investment firm made headlines last week when new documents revealed the company purchased more than $2 billion worth of shares in Bitcoin spot exchange-traded funds, including $844 million in the BlackRock offer and $806 million in the Fidelity fund.
Millennium’s Bitcoin Core Trading
Basis trading is a market-neutral scheme, meaning it allows traders to make money without betting that the price of the asset will rise or fall.
Here’s how it works.
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There are several ways for investors to gain exposure to Bitcoin. They can purchase coins on the spot market through an exchange like Coinbase. They can buy Bitcoin ETF shares for cash. They can also choose to use leverage by borrowing money from a stock market, with the aim of investing it.
Traders use Bitcoin futures to take advantage of leverage on CME. These instruments allow traders to buy or sell Bitcoin at a predetermined price and on a specified future date.
When demand is high, Bitcoin futures can become more expensive than the Bitcoin spot price. However, this situation tends to be temporary because the two prices are expected to converge when the futures contract expires.
It’s this gap, called base, that Millennium is likely targeting.
How it works
Hypothetically, if Bitcoin is trading at $70,000 but the corresponding futures contracts on CME are worth $77,000, then there is a 10% price gap between the two.
The question then is: will the price of Bitcoin catch up with the price of the futures contract? Or will the opposite happen: will the futures contracts deflate until they reach the spot price?
Institutional traders like Millennium who believe in the first scenario will buy Bitcoin ETF shares in spot and sell Bitcoin futures on the CME. If they believe in the second scenario, they will sell Bitcoin in the spot market and compensate by buying the futures contract.
This allows them to take advantage of the 10% price differential between spot prices and futures prices. However, they can still lose money if they bet on the first scenario and the second happens – or vice versa.
Millennium held Bitcoin ETF shares at the time of filing, but future filings may show that the asset manager has abandoned some, or even all, of its holdings.
Crypto market players
- Bitcoin is down almost 1% today and trading at just over $68,000.
- Ethereum jumped almost 3% overnight. It is now trading at $3,900.
What we read
Tom Carreras is a markets correspondent at DL News. Do you have a tip on Bitcoin ETFs? Contact us at tcarreras@dlnews.com