Spot Bitcoin exchange-traded funds are vacuuming funds like there’s no tomorrow.
Yet Bitcoin’s price isn’t bulging. For almost a month now, the top cryptocurrency has traded in a tight range between $67,000 and $72,000.
Crypto market maker Wintermute offered an explanation in its latest report. The problem, the firm said, is that hedge funds buying ETF shares may well be selling the asset elsewhere.
$100 billion in assets
Bitcoin ETFs have experienced inflows for 19 days in a row as of yesterday — a new record.
And just last week, Bitcoin investment vehicles amassed almost $2 billion globally, bringing crypto assets under management to the $100 billion mark for the first time since March.
But even then, Bitcoin is still trading at $69,000, the same price as in mid-May.
CME, the largest platform in terms of volume for Bitcoin derivatives, offers a clue as to why: Hedge funds have taken up an unprecedented $7.5 billion in short positions, according to Wintermute.
Not necessarily bearish
It’s not necessarily because they’re bearish Bitcoin.
By combining short positions with a potential Bitcoin ETF exposure, hedge funds can profit from inefficiencies in the crypto market, Wintermute said.
These funds are likely targeting the discrepancies between Bitcoin’s spot price in ETFs and its futures on the CME exchange.
This strategy is deemed to be market neutral, which means the firms aren’t making a directional bet on the price of Bitcoin — they’re simply arbitraging the asset on different venues.
Hedge fund strategies
Hedge fund Millennium Management, which manages some $60 billion, had likely deployed such a strategy along with other peers when it purchased over $2 billion across for Bitcoin ETFs in May.
In other words, these flows are purposefully countered on other venues by the very same institutions that acquired the shares.
“The impact of recent market structure changes is becoming evident, particularly with the muted price action despite significant ETF inflows,” Wintermute said. “Markets remain range-bound.”
Crypto market movers
Bitcoin is down 3.2% in the last 24 hours to about $67,145.
Ethereum is down 3.7% over the same period to $3,537.
What we’re reading
How Robinhood’s $200m Bitstamp deal is a bet against the SEC’s crypto crackdown — DL News
Best Crypto Options Trading Platforms June 2024 — Milk Road
Friend.tech to Migrate From Base to Its Own Blockchain — Unchained
Best DeFi Exchanges 2024 — Milk Road
Top crypto VCs bounced back in 2023 as Multicoin led the way with 180% increase — DL News
Tom Carreras is a markets correspondent at DL News. Got a tip about Bitcoin ETFs? Reach out at tcarreras@dlnews.com
