BTC ETF Sees $2.5B Inflow, Indicating Bullish Bets Beyond Arbitrage

SUMMARY

Observers note that institutions are shifting from traditional cash and carry arbitrage strategies to focusing on pure directional plays.
CF Benchmarks points out a disconnect between spot ETF inflows and rising CME futures open interest, indicating a preference for bullish bets.
Bitwise also highlights that the increased futures premium supports this bullish sentiment in the market.

Despite the fact that Bitcoin’s (BTC) inability to break through the $70,000 barrier, recent developments in the U.S.-listed spot ETFs may offer a silver lining. Since October 14, 11 spot BTC ETFs have seen about $2.5 billion in cumulative net inflows, stamping the largest increment since March, as detailed by SoSoValue. This trend shows that institutional activity is inclining more towards bullish directional bets rather than traditional cash and carry arbitrage strategies.

As open interest in Bitcoin futures on the Chicago Mercantile Exchange (CME) hits record levels of over $12 billion, experts accept that the recent ETF inflows are essentially for directional trading. Sui Chung, CEO of CF Benchmarks, clarified that typically, the increment in ETF inflows correlates with basis trading. However, the current influx altogether surpasses the increase in CME futures open interest, with only approximately 40% of the influx credited to basis trading.

The increased futures premium also bolsters this shift away from cash and carry procedures. The annualized one-month BTC futures premium on the CME bounced from 6% to 13.9% last week, the most noteworthy level since May, recommending a developing inclination for long trades. André Dragosch, head of research at Bitwise, noted that this rising basis rate demonstrates an inclination toward long positioning, which steepens the futures curve.

Market makers, including Jane Street, for the most part, respond to increased ETF inventories by altering their short positions in BTC. Recent information uncovers that there has been a net increment in long positions by means of futures and perpetual contracts. However, a few market participants appear to be engaging in a mixed strategy, buying ETFs and shorting CME futures. Notably, large speculators held a net short position of 1,872 contracts, the most noteworthy since March, signaling contrasting techniques within the market.

Overall, the convergence of rising ETF inflows, increasing open interest, and hoisted futures premiums paints a complex picture of institutional sentiment toward Bitcoin, proposing a strong craving for bullish directional plays in the market.