CME hedge funds flip net long as bitcoin basis hits 3%

Leveraged funds on the Chicago Mercantile Exchange turned net long on bitcoin futures after years of structural short positioning, a rare directional shift toward bullish exposure.

Ki Young Ju, CEO of CryptoQuant, said the flip marks a break from the basis trade that kept hedge funds structurally short for years. "You cannot run a traditional carry trade with an aggregate net-long futures position. The suits are now betting on bitcoin's upside," Ju said.

The annualized three-month bitcoin futures basis has fallen to approximately 3 percent, below the roughly 3.8 percent yield on two-year U.S. Treasury notes, making the once-popular carry trade less attractive. Bitcoin rebounded from around $58,000 on July 1 to trade above $65,000, with the coin at $64,569 as of Aug. 10.

The positioning shift removes a structural headwind that historically capped bitcoin rallies. If leveraged funds maintain net-long exposure, reduced selling pressure from basis traders could support further upside, though the move also leaves the market more exposed to a sharp unwind if prices reverse.

Basis Falls From 20% to 3% Below Treasury Yields

The basis trade — buying spot bitcoin or ETFs while selling futures to capture the premium between the two — has been a staple for hedge funds since CME launched bitcoin futures in 2017. The strategy is market-neutral, profiting from the convergence of futures and spot prices rather than directional moves. That kept leveraged funds' reported futures positioning negative for years.

The economics shifted as the three-month futures basis compressed from over 20 percent annualized to roughly 3 percent, below the yield on two-year Treasuries. With lower returns and the added costs of funding, margin and execution, traders have less incentive to maintain carry positions.

Net-Long Flip Removes Structural Selling Pressure

The transition from structural shorts to an aggregate net-long position is a meaningful institutional signal. While some of the change reflects basis traders closing shorts, crossing into positive territory means CME leveraged funds' futures longs now exceed their shorts.

The shift aligns with other bullish signals. Bitcoin's recovery from $58,000 to above $65,000 has been accompanied by renewed ETF inflows, and the reduced carry-trade incentive suggests funds are now building directional long exposure rather than running arbitrage.

The key question is whether the net-long positioning holds. If bitcoin's price stalls or reverses, leveraged funds holding long futures could face margin pressure, potentially accelerating a selloff. Conversely, sustained net-long positioning from institutional players could provide the momentum needed to push bitcoin toward its next resistance level.

This article is for informational purposes only and does not constitute investment advice.