Ether Sees Record Short Build up as Hedge Funds Pile on Basis Trade

Hedge funds have been aggressively shorting ether (ETH) during the recent uptick to $3,000 as they attempt to harvest a yield by carrying out a basis trade.

Hedge funds are shorting ether to the tune of $1.73 billion on the CME, a venue favored by institutional traders, according to data from the Block, which cites the CFTC. CME data also shows that ether leveraged net totals have skewed heavily to the short side, according to X account zerohedge.

A basis trade involves shorting an asset on one venue whilst simultaneously buying on another, remaining delta neutral in terms of price action. In this case, traders can secure around 9.5% per year by shorting ETH on the CME while buying spot ETFs, of which there is around $12 billion in assets under management.

Data from Coinglass shows that on Thursday alone there was a record $421 million worth of inflows to ether ETFs, a trend that has been ongoing since early May.

Those shorting ETH could secure an additional yield if they buy spot ETH and stake it for a further 3.5% per year. It’s worth noting that this option isn’t possible for spot ETF purchasers as custody is handled by the ETF provider.

Bitcoin (BTC) was a popular asset for traders carrying out the basis trade in 2024 but that yield collapsed in March, which temporarily stalled inflows and muted price action.