CME Leveraged Funds Raise Bets Against Bitcoin to Record High as Futures Premium Spikes

Earlier this month, analysts had warned of renewed interest in cash and carry arbitrage.

Oct 26, 2021 at 7:17 a.m. UTC
Updated Oct 26, 2021 at 9:57 p.m. UTC

Leveraged funds on the Chicago Mercantile Exchange (CME) raised their bets against bitcoin rising to a record high in the week ended Oct. 19, possibly to profit from the widening gap between futures and spot markets prices.

The Commodity Futures Trading Commission’s (CFTC) Commitments of Traders report released on Friday showed leveraged funds held a net short position of 31,000 contracts in the seven days to Oct. 19, marking an increase of 6,000 from the previous week.

Record shorts by leverage funds does not necessarily mean these traders had a bearish bias. They may have raised short positions in the futures market and simultaneously bought the cryptocurrency in the spot market, booking the so-called carry trade.

The strategy is initiated when futures trade at a notable premium to the spot price and trades can profit from an eventual convergence of prices in the two markets.

The annualized premium in the front-month bitcoin futures contracts surged from 1% to 20% in the run-up to ProShares’ Bitcoin Strategy ETF launch on Oct. 18, and was last seen at 13%. The three-month rolling premium also rose from 3% to 16% before tapering to 11.7%.

ProShares’ ETF, which invests in the CME-listed bitcoin futures contracts, made a strong debut last Tuesday on the New York Stock Exchange, while Valkyrie’s futures-based ETF went live on Friday.

Earlier this month, analysts had warned of an uptick in futures premium and renewed interest in cash and carry arbitrage.


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Omkar Godbole is the senior reporter on CoinDesk's Markets team.