ETFs
“Unprecedented scale” of Wall Street’s favorite Bitcoin ETF exchange is about to reach Ethereum – DL News
- ETFs have allowed institutional traders to deploy a market-neutral trading strategy on Bitcoin.
- These institutions account for a good portion of the growing short interest in Bitcoin on the CME.
- Ethereum ETFs will likely create a similar opportunity for Ether.
Bitcoin spot exchange-traded funds, launched in the United States in January, are boosting the popularity of an arbitrage strategy called base trading.
That’s according to analysts at CF Benchmarks, a company that provides cryptocurrency price data to financial institutions like CME Group, the parent company of the Chicago Mercantile Exchange.
“The effectiveness of these spot products, aligned with the CF Benchmarks indices, has given traders the confidence to arbitrage the bases of the CME futures markets on an unprecedented scale,” said Gabe Selby, head of the research at CF Benchmarks. DL News.
Basis trading is a so-called market-neutral strategy, meaning traders do not rely on prices rising or falling to make a profit.
Trading involves profiting from the price difference between the spot price of an asset and its futures price. Futures contracts allow traders to purchase an asset at a specified price on a specified future date.
For institutional traders who study crypto markets, this means arbitrage spot Bitcoin ETFs and Bitcoin futures on the CME – for example, by buying ETF shares and selling short an equal amount on the CME.
Bitcoin ETFs have given financial institutions a highly liquid venue to deploy core transactions without having to manage crypto-specific infrastructure, like exchanges or custodial products.
The funds contributed to an 80% increase in open interest – a measure that reflects the total number of futures contracts outstanding – in the CME Bitcoin futures market since January, according to CF Benchmarks.
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“This dynamic will likely lead to increased activity across the entire futures curve, including longer maturities,” Selby said.
Short contracts are increasing
Basis trading is likely the reason for a sharp increase in short selling or betting that an asset’s price will fall.
According to CF Benchmarks research, there are just under 18,000 short-term contracts on the CME, worth approximately $6.3 billion.
This is “well above the record prior to the Bitcoin ETF’s one-time approval in October 2021” – around 6,200 short-term contracts – according to the research.
CF Benchmarks research indicated that “the role of basis trading in facilitating arbitrage and boosting liquidity is likely to intensify.”
Analysts also said institutional traders would likely also deploy core trading on Ethereum once spot ETFs launch. this summer.
Crypto market players
- Bitcoin is down 5% in the last 24 hours and is trading at $60,800.
- Ethereum fell 5.5% over the same period to $3,270.
What we read
Joanna Wright and Tom Carreras write about the markets for DL News. Do you have a tip on Bitcoin ETFs? Contact us at joanna@dlnews.com or tcarreras@dlnews.com