Many Crypto investors often take Bitcoin Exchange-Traded Fund (ETF) inflows as an influx of new investors. However, this perception could not be further from the truth.
When the Bitcoin spot ETF began trading on January 11, 2024, crypto veteran investors assumed that this new financial instrument would be the gateway to onboard most traditional finance investors – for the most part, they were right.
However, the inflows recorded from hedge funds such as Blackrock, Fidelity, and other Bitcoin spot ETF providers can be largely attributed to a different factor.
Carry Trades Between CME Futures and Spot ETFs
Hedge funds use a trading strategy called “Carry Trade”, in which traders simultaneously sell a futures contract at a premium while buying the underlying asset at the spot price. This strategy turns a profit for them as these two prices converge toward the expiration of the futures contract.
Hedge funds providing Bitcoin spot ETFs engage in this carry trade by temporarily buying spot Bitcoin ETFs to hedge their positions in the futures market. This is what is recorded as inflows.
The last recorded Bitcoin spot ETF inflows, amounting to $203 million, were on April 5, 2024. While some volumes may comprise genuine investor purchases, most are from the Hedge Fund’s carry trades.
Carry Trades are not long-term investments in a spot ETF but short-term trading strategies aimed at mitigating risk. Remember, these hedge funds are here to make money.
While, in theory, Carry Trades look suspicious, they are perfectly legal. They are especially helpful when it comes to pushing up the price of BTC, but may send the wrong impression of the crypto industry growth.
Before March 26, 2024, over $13 billion of Bitcoin spot ETF inflows helped push Bitcoin’s (BTC) price from $40,000 to $70,000. The next huge ‘inflow’ could push Bitcoin’s price to unprecedented heights.
In the long run, the artificial demand for Bitcoin created by this trading strategy will help onboard new users onto the blockchain industry. It is easier to hop on a winning than a losing asset.
The next couple of months will be monumental for Bitcoin’s price. Between the halving event coming up and the trading tactics being played by trillion-dollar hedge funds, $70,000 BTC may just be the tip of the iceberg.
