Glassnode analysts have identified institutional cash-and-carry arbitrage strategies as a significant factor influencing demand-side pressure for U.S. spot exchange-traded funds (ETFs) linked to Bitcoin.

According to Glassnode's analysis, institutional traders are engaging in cash-and-carry trades, where they purchase Bitcoin in the spot market and immediately hedge their exposure by selling Bitcoin futures. This approach helps mitigate immediate upward pressure on the spot price that would otherwise result from spot asset purchases alone.

The analysts highlighted the stability of open interest in the CME Group futures market, which has remained above $8 billion, indicating a growing adoption of cash-and-carry arbitrage among traders from traditional financial markets.

Cash-and-carry trades involve purchasing an asset in the spot market while simultaneously selling the same asset in the futures market. Investors profit if the basis, the difference between spot and futures prices, narrows or becomes positive by the futures contract's expiration.

This strategy, commonly known as "cash-and-carry," maintains a market-neutral position by coupling a long-spot position with a short futures position, capitalizing on the premium often present in futures contracts relative to spot prices.

Alistair Byas-Perry, Head of Capital Markets at 21Shares, explained that spot Bitcoin ETFs are utilized by various market participants, with cash-and-carry trades being a prevalent strategy. He noted that Bitcoin futures often trade in contango, creating an attractive basis for investors to exploit. Hedge funds, in particular, are active in this space, going long on Bitcoin via spot ETFs while shorting Bitcoin futures through platforms like CME.

Byas-Perry highlighted that hedge funds' 13F filings indicate significant holdings in spot Bitcoin ETFs, with many utilizing the cash-and-carry trade as part of their strategy. While hedge funds employ various trading approaches, the demand for spot Bitcoin ETFs driven by the basis trade has notably contributed to their success this year.

Spot Bitcoin ETFs are experiencing increased demand from various market participants, particularly hedge funds, as cash-and-carry trades become more prevalent, enhancing liquidity and driving the success of these ETFs in the current market landscape.