Bitcoin Basis Trade Resurges as Trump's Election Victory Spurs Record ETF Inflows

A significant Bitcoin trade is making a strong comeback as prices hit new highs. As of November 12, 2024, Bitcoin's value has surged, prompting Millennium Management to invest $2 billion in Bitcoin exchange-traded funds (ETFs) back in May. Experts believe this was part of a smart trading strategy known as the basis trade. Following the recent elections, traders have been snapping up billions in ETFs.

The excitement around Donald Trump's election victory has reignited one of the most popular cryptocurrency trades among hedge funds. This trade, called the Bitcoin basis trade, is similar to what Millennium Management did when it invested around $2 billion in various Bitcoin ETFs earlier this year. Now, this strategy is proving to be quite profitable.

The basis trade happens when rising demand pushes the price of Bitcoin futures above that of spot Bitcoin ETFs. Big funds like Millennium use fast algorithms to take advantage of this price gap. This week, the price difference reached as high as 17% on the Chicago Mercantile Exchange. That’s comparable to when Bitcoin ETFs first launched in January.

Thomas Erdösi, head of product at CF Benchmarks, pointed out that the basis is a strong indicator of market sentiment. He said, “We can see from the sustained increase in the basis that the market feels very positive about Bitcoin's upward price movement.” It's worth noting that the basis trade is often market-neutral, allowing traders to profit from inefficiencies without betting on the direction of prices.

Since Trump's victory, Bitcoin has been on a roll, setting record highs. Since November 5, it has jumped over $18,000, which is a 27% increase. Timo Lehes, co-founder of Swarm, mentioned that the sideways crypto market has been building pressure for the past six months, leading to this surprising speed in price movements.

Erdösi also highlighted the growing inflows into spot Bitcoin ETFs as a sign of institutional interest. On November 7, BlackRock's Bitcoin ETF saw record inflows of $1.1 billion, according to data from Farside. Additionally, IBIT recorded its third-highest inflow on Monday, bringing in nearly $757 million.

In the four days following the election, spot Bitcoin ETFs accumulated almost $3.5 billion in total inflows, as reported by Nate Geraci, president of the advisory firm ETF Store.