Why Bitcoin Hasn't Hit $100K Yet, and Why That Doesn't Spell Doom

Oh, yes, there is a big short position out there, but not due to bearishness. Rather, it’s because hedge fund managers are very smart people. And rather than betting that bitcoin’s price is going to crash, they are simply engaging in a market-neutral strategy that’s making them a lot of money.

It’s called the basis trade, and it’s gained traction thanks to the launch of spot bitcoin ETFs earlier this year. It’s a strategy that exploits the price difference between the spot and futures markets; traders simply buy bitcoin and simultaneously sell bitcoin futures contracts, capturing the price difference between the two.

Hedge funds are using this arbitrage trade to generate profits. (Futures contracts allow investors to buy or sell a product (in this case bitcoin) at a future date without having to own the underlying asset. There’s a cost to carry, which is why futures often trade at a premium to the spot — and that’s what allows this trade to be profitable.

Now, Let’s Talk Numbers

One published report says there’s $7.5 billion in net-short futures — compared to just $2 billion back in 2021. The surge in popularity for the basis trade shows the growing acceptance and integration of bitcoin into the financial markets; the rapid adoption of this strategy in crypto reflects the market’s maturation.

So, what does this mean for bitcoin’s future? In short, don’t mistake bitcoin’s flat price of the past several months as a problem. Instead, consider this: despite such a large short position, bitcoin’s price has remained stable! That in itself is remarkable, and provides the confidence that as inflows continue from advisors and institutional investors over the next year, bitcoin’s price will resume its “up and to the right” trajectory.