BTC ETF Inflows Rise Sharply as Basis Trade Approaches 9%, Indicating Increased Demand

The exchange-traded funds (ETFs) for spot bitcoin listed in the U.S. saw a significant inflow of $667.4 million on May 19, marking the highest daily total since May 2, indicating a resurgence in interest from institutional investors.

A substantial portion of this capital, amounting to $306 million, was directed towards the iShares Bitcoin Trust (IBIT), which now stands at a total of $45.9 billion in inflows based on data from Farside Investors.

This spike in investment comes on the heels of bitcoin’s impressive price rally, during which it maintained a trading price above $100,000 for an extended 11-day period, successfully restoring confidence in the market.

Furthermore, the strategy known as the annualized basis trade, involving taking a long position in the spot ETF while simultaneously shorting bitcoin futures on the CME, has become increasingly appealing, with yields nearing 9%, nearly double the figures recorded in April.

As per data from Velo, this has led to a slight rise in basis trade activities, showcased by a surge in trading volumes on CME futures.

On Monday, CME futures transactions reached $8.4 billion (approximately 80,000 BTC), the highest level observed since April 23. Concurrently, open interest rose to 158,000 BTC, reflecting an increase of over 30,000 BTC contracts since the lows tallied in April, highlighting the escalating interest in leveraged and arbitrage trading strategies.

It is worth noting, however, that both futures volume and open interest are still significantly lower than the figures from January, when bitcoin soared to an all-time high of $109,000, suggesting there remains considerable potential for expansion.

The recent growth in the basis implies that this expansion may already be underway, as former participants who exited the market earlier in the year, when the basis fell below 5%, are gradually returning.

Recent 13F disclosures showed that the Wisconsin State Pension Board divested from its ETF holdings during the first quarter, likely due to an unfavorable environment for basis trading at that time. Nevertheless, considering that 13F data is reported with a lag of one quarter and the basis spread has since widened from 5% to nearly 10%, it is likely the board has re-engaged with the market in the second quarter to take advantage of the improved arbitrage conditions.