Analysis: Hedge fund giant Millennium may deploy a “basis trading” strategy to arbitrage Bitcoin spot and futures prices
PANews reported on May 28 that according to DL News, two institutional traders said that the hedge fund giant Millennium, which had previously held a Bitcoin spot ETF with a value of $2 billion, may have deployed a method called "basis trading." As for its trading strategy, Millennium is not betting that Bitcoin prices will rise further, but may instead arbitrage Bitcoin spot prices and futures prices on the Chicago Mercantile Exchange. In other words, Millennium doesn't necessarily invest in ETFs because it likes Bitcoin—it just takes advantage of market inefficiencies. The above-mentioned traders do not work at Millennium, but have relevant experience at Wall Street trading firms.
Basis trading is a financial term used to describe the difference between the spot price and the futures price of a specific commodity. Assuming Bitcoin is trading at $70,000 but the corresponding futures contract on CME is worth $77,000, the price difference between the two is 10%. If institutional traders believe that the price of Bitcoin will catch up with the price of futures contracts, they will buy shares of the spot Bitcoin ETF and sell Bitcoin futures contracts on CME; if the opposite is true, they will buy shares of the spot Bitcoin ETF. share and sell Bitcoin futures contracts on CME. This allows them to take advantage of the 10% spread between spot and futures prices. However, if they bet on the first scenario and the second scenario happens, or vice versa, they could still lose money.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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