7.5 Billion in Bitcoin Shorts

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Bitcoin Net Shorts Hit Record $7.5 Billion Driven by Popular Trade Strategy

The net short interest in Bitcoin futures has surged, with a significant portion attributed to the growing popularity of the basis trade. This market-neutral strategy aims to capitalize on discrepancies between spot and futures markets, and is likely responsible for the short interest in approximately 18,000 CME Bitcoin futures contracts. The basis trade has gained traction since the launch of spot Bitcoin exchange-traded funds (ETFs) in January, allowing traders to buy ETFs and sell futures representing Bitcoin at higher prices, profiting from the price differences.

The availability of ETFs has simplified the execution of this trade, making it easier for traders to conduct the cash-and-carry strategy. The surge in short interest in futures aligns with a resurgence in demand for spot Bitcoin ETFs, which collectively hold over $61 billion in assets. However, experts note that the basis trade is not the primary driver behind flows into the ETFs, but rather organic directional demand.

The basis trade can complicate the interpretation of short-term ETF flow data, as it can mask organic demand for Bitcoin. While the funds have seen significant net inflows of $15.6 billion since their launch, they recorded outflows of $65 million on Monday. The cumulative net inflow since the inception of these ETFs has now reached a record high of about $15.7 billion. Experts advise against misconstruing the basis trade as the primary driver behind ETF flows, and instead emphasize the importance of understanding organic demand for Bitcoin.

Vast majority’ of ETF flows could be driven by arbitrage — Raoul Pal

According to Real Vision CEO Raoul Pal, around two-thirds of the net inflows into spot Bitcoin exchange-traded funds (ETFs) may be coming from arbitrage trading hedge funds, rather than retail investors. This is based on data presented by crypto analyst Tom Dunleavy, which showed that the top 80 holders of US-based spot Bitcoin ETFs were hedge funds with capital coming from various institutional and individual investors. The 80 firms collectively hold around $10.26 billion worth of spot Bitcoin ETF shares, which is approximately two-thirds of the $15.42 billion in net inflows since the launch of spot Bitcoin ETFs.

Pal believes that the majority of ETF flows are driven by arbitrage, rather than retail investors. He notes that the main hedge funds listed are primarily arbitrage traders, not directional risk takers. Arbitrage trading involves spotting short-term opportunities by finding discrepancies between the net asset value of the spot Bitcoin ETF and the price of Bitcoin.

However, others have disputed Pal's claims, highlighting that the basis trade, which involves profiting from the difference between the spot and futures prices of Bitcoin, makes up less than 15% of overall ETF flows. Despite this, Pal's claims suggest that retail investors are not yet a significant driver of spot Bitcoin ETF flows, and that arbitrage trading is a major contributor to the growth of these funds.

CBDCs' threat to freedom put under the microscope at Oslo conference

The Oslo Freedom Forum, an annual gathering of human rights activists, recently addressed the threat of central bank digital currencies (CBDCs) to freedom around the world. The event highlighted the concerns of governments abusing their power, particularly in authoritarian regimes. Many attendees, including activists, government officials, and citizens, expressed surprise and disheartenment at the lack of public awareness about CBDCs.

The event featured a discussion on the rollout of CBDCs in Nigeria and China, which highlighted government inefficiency. However, experts warned that governments may attempt to make up for their lack of competence through force, which could lead to more drastic measures. The panel emphasized that CBDCs could give governments control over people's income, making it difficult for individuals to dissent.

The discussion also touched on the experiences of individuals who have faced persecution and oppression due to their activism. The speakers highlighted the importance of raising awareness about the risks of CBDCs and the need for individuals to take action to protect their freedom. As one speaker noted, "Protests, activism, and dissidence become vastly more difficult if governments have total and trivial control of their citizens' money." The event served as a reminder of the importance of speaking up and taking action against the threats to freedom posed by CBDCs.

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