Bitcoin (BTC) futures are experiencing a historic surge in net short interest among leveraged funds, driven by the growing popularity of the basis trade strategy. This market-neutral strategy has led to a significant increase in short positions, with over $7.5 billion in net-short futures reported ¹.

Key Points:

- Basis trade strategy: This strategy involves buying an asset in the spot market and selling equivalent futures contracts to capitalize on price discrepancies between spot and futures markets.

- Record short interest: The current net short interest in Bitcoin futures has surpassed the previous peak of $2 billion in 2021, with over 18,000 Chicago Mercantile Exchange (CME) Bitcoin futures contracts involved ¹.

- Spot Bitcoin ETFs: The introduction of spot Bitcoin exchange-traded funds (ETFs) in January has facilitated the execution of the basis trade, contributing to the high short interest in futures and a rebound in demand for these ETFs ¹.

- Dynamic market sentiment: Despite the popularity of the basis trade, organic directional demand remains a significant driver of flows into Bitcoin ETFs, indicating diverse investor motivations beyond futures premium arbitrage ¹.

Impact on Bitcoin Price:

- Current price: Bitcoin is trading around $66,270, indicating a 5% drop in price over the past 24 hours ¹.

- Downtrend: The current market conditions suggest a continuation of the downtrend, with $66,300 as the last support level before a potential retest of $65,000 ¹.

Expert Insights:

- Ravi Doshi, FalconX: Highlighted the popularity of the basis trade, with over $7.5 billion in net-short futures ¹.

- Vetle Lunde, K33 Research: Cautioned against attributing the popularity of the basis trade as the primary driver of flows into ETFs, emphasizing organic directional demand as a key source of ETF inflows ¹.