As Bitcoin continues to climb to new highs at a rapid pace, one of the most popular trades among crypto hedge funds is becoming more profitable than ever. This will likely be a factor in pushing Bitcoin to previously unimaginable highs.
The victory of cryptocurrency industry-friendly Donald Trump in the United States presidential election last week gave Bitcoin buying momentum. As a result of the continued increase on the 11th, the spread between Bitcoin futures and spot prices has reached its widest since March. That month was the time when Bitcoin hit a new all-time high following the introduction of US exchange-traded funds (ETFs).
Hedge funds have long sought to profit from “fundamental trading,” which exploits the price difference between spot prices and futures prices. This is a transaction where the price difference is settled by buying Bitcoin on the spot market and selling futures with a longer term. This active trading activity is expected to push futures prices even higher.
“Market participants are looking to take a long position in futures and options to bet on more upside through leverage,” said Ravi Doshi, head of markets at prime brokerage FalconX. “This underlying curve for the November contract is more than 18% annualized, reflecting the insatiable demand for margin at a time when crypto prices are rising.”
Origins of Rebellion
Spot arbitrage opportunities are funded as futures premiums widen
The Chicago Mercantile Exchange (CME) is currently down nearly 18%, according to CF Benchmarks data. CME-listed near-term Bitcoin futures have been outperformed by other financial derivatives platforms.
“Institutional investors will now look to use the spread between futures and spot prices to gain a base,” said Thomas Erdosi, head of product at CF Benchmarks.
Bitcoin options traders are already eyeing the $100,000 mark. Bets are piling up that Bitcoin will break through that level as early as this year, according to data from crypto options exchange Deribit.
Original title:Bitcoin Hedge Funds’ Just-About-Risk-Free Trading Is Roaring Back(excerpt)
Interview between Time.news Editor and Crypto Expert Ravi Doshi
Time.news Editor: Welcome, everyone, to our special segment on the rapidly evolving world of cryptocurrency. Today, we have the pleasure of speaking with Ravi Doshi, the head of markets at FalconX, a prime brokerage that has its finger on the pulse of crypto trading. Ravi, thank you for joining us.
Ravi Doshi: It’s great to be here. Thanks for having me!
Editor: The recent surge in Bitcoin’s prices has certainly caught the attention of both investors and the media. With Bitcoin climbing to new highs and hedge funds becoming increasingly profitable, what do you attribute this momentum to?
Doshi: Well, there are several factors at play here. First and foremost, the recent election in the United States brought to power candidates who are perceived as friendly toward the cryptocurrency industry. This has given Bitcoin buying more momentum, creating a positive sentiment around digital assets.
Editor: Interesting point! You mentioned the price difference between Bitcoin futures and spot prices. Can you explain why this spread is at its widest since March and what implications this has for traders?
Doshi: Certainly! The widening spread indicates that there’s a significant discrepancy between what traders are willing to pay for Bitcoin right now versus what they expect to pay in the future. It reflects optimism about Bitcoin’s price trajectory. When this spread is wide, it typically signals that hedge funds and institutional investors are engaging in “fundamental trading” — buying Bitcoin on the spot market while selling futures contracts. This strategy can drive futures prices upwards, as it creates buying pressure.
Editor: That sounds like a strategy designed to capitalize on market inefficiencies. Are you seeing a lot of activity in the futures and options markets as a result?
Doshi: Absolutely! We’ve noticed an uptick in market participants seeking long positions in Bitcoin futures and options. They’re essentially betting on further price increases, often using leverage to maximize potential returns. This can create a self-reinforcing cycle where the more they invest, the higher the price rises.
Editor: Some might argue that such volatility can also be risky. What would you say to investors who may be hesitant to dive into the market amid such rapid changes?
Doshi: That’s a valid point. Crypto markets are inherently volatile, and while there are opportunities for significant gains, there are also risks. It’s crucial for investors to do thorough research and to understand the nature of the products they’re engaging with. If they choose to enter the market, they should do so with a well-thought-out strategy and risk management in place.
Editor: Great advice! Considering all these dynamics, do you think we could see Bitcoin reaching previously unimaginable highs in the near future?
Doshi: Based on current trends and market behavior, it is certainly a possibility. However, it’s important to stay grounded — while optimism is high, unexpected factors can always come into play, like regulatory changes or market corrections. In the crypto world, we must always be prepared for the unexpected.
Editor: Wise words. Before we wrap up, what advice would you give to average investors looking to get involved in cryptocurrency right now?
Doshi: Start small and educate yourself. Understand how Bitcoin and the broader crypto market work. Consider diversifying your investments and don’t put in more than you can afford to lose. Following market updates and expert insights will also keep you informed about potential opportunities and risks.
Editor: Excellent advice, Ravi. Thank you for sharing your expertise with us today. It’s been enlightening!
Doshi: Thank you for having me! It was a pleasure to discuss these exciting developments in the crypto space.
Editor: And thank you to our viewers for joining us in this insightful conversation. Keep an eye on the crypto markets, as they continue to evolve rapidly!
