Bitcoin price reflects basis trade dynamics, not suppression

Bitcoin price reflects basis trade dynamics, not suppression


Quick Take

Since June 10, Bitcoin has experienced a notable decline, dropping from approximately $72,000 to as low as $65,200. This drop coincides with significant activity in Bitcoin exchange-traded funds (ETFs), which have seen around $580.6 million in outflows, according to Farside data.

This starkly contrasts the previous record-setting 19 consecutive trading days of inflows, amounting to roughly $4 billion, which coincided with Bitcoin’s price from around $60,000 to $72,000 between May 13 and June 7.

The recent outflows represent approximately 4.3% of the total inflows, aligning with a roughly 10% correction in Bitcoin’s price.

Bitcoin ETF Flow Table: (Source: Farside)

This discrepancy has led to questions about why Bitcoin’s price didn’t rise despite the substantial inflows. One plausible explanation is the “basis trade,” a strategy employed by hedge funds and investors.

Tokenmetrics

In this strategy, investors go long on the underlying spot ETF products and short the futures market, creating a net-neutral trade that protects them regardless of whether the price goes up or down. Investors focus on the spread between the spot price and the futures price, as this differential determines the profitability of the basis trade.

BTCUSD vs BTC1! CME: (Source: TradingView)BTCUSD vs BTC1! CME: (Source: TradingView)
BTCUSD vs. BTC1! CME: (Source: TradingView)

This approach is influenced by the current positive funding rates, which are around 6%, according to Coinglass. Traders are willing to incur higher costs to leverage long positions in Bitcoin, often using calendar futures on the CME. These futures, trading at a premium to the spot price, can be rolled over through a process known as “rolling forward.” The CME defines this as exiting an expiring futures contract while simultaneously entering a new one with a later expiration date, thus extending the position without interruption.

US Bitcoin Spot ETF Flows: (Source: Glassnode)US Bitcoin Spot ETF Flows: (Source: Glassnode)
US Bitcoin Spot ETF Flows: (Source: Glassnode)

By shorting the futures market while being long on the spot market, traders create a hedge that mitigates price movements, resulting in the observed “suppression” of Bitcoin’s price.

The rolling forward strategy allows traders to maintain exposure to Bitcoin without closing their positions at contract expiration. Consequently, the Bitcoin price is less sensitive to Bitcoin inflows despite significant flows, offering a potential explanation for why it hasn’t reached new all-time highs following the $4 billion influx.



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

Pin It on Pinterest

CryptoKorner
Ledger
CryptoKorner
Bitcoin price reflects basis trade dynamics, not suppression
Tokenmetrics
BTCUSD vs BTC1! CME: (Source: TradingView)
BTCUSD vs BTC1! CME: (Source: TradingView)
US Bitcoin Spot ETF Flows: (Source: Glassnode)
US Bitcoin Spot ETF Flows: (Source: Glassnode)
Fiverr
Bitcoin, Stocks And Altcoins Move Toward New Houses
The AI Gig Economy Is Here—And It Pays in Crypto
ETH Nears $4K After 50% Surge and $100M in Shorts Burned – Spotlight on the Best Altcoins
High yields, hidden hazards? The truth about staking in crypto
Bitcoin Price Poised to Rally to $150K by October, Says Cooper Research
Ethereum
bitcoin
ethereum
bnb
xrp
cardano
solana
dogecoin
polkadot
shiba-inu
dai
Free book
Paxful
Amazon Researchers Reveal Mitra: Advancing Tabular Machine Learning with Synthetic Priors
Wall Street Set to Benefit as In-Kind Crypto ETF Redemptions Gain Momentum
Ether ETFs Crush Bitcoin ETFs With Record $726 Million Single-Day Haul
MARA offers up to $1B of note offering to buy Bitcoin
Bitcoin, Stocks And Altcoins Move Toward New Houses
Amazon Researchers Reveal Mitra: Advancing Tabular Machine Learning with Synthetic Priors
Wall Street Set to Benefit as In-Kind Crypto ETF Redemptions Gain Momentum
Ether ETFs Crush Bitcoin ETFs With Record $726 Million Single-Day Haul
MARA offers up to $1B of note offering to buy Bitcoin
ar
zh-CN
nl
en
fr
de
it
pt
ru
es
en
bitcoin
ethereum
xrp
tether
bnb
solana
usd-coin
dogecoin
staked-ether
tron
bitcoin
ethereum
xrp
tether
bnb
solana
usd-coin
dogecoin
staked-ether
tron