Glassnode says institutional cash-and-carry trades are influencing US spot bitcoin ETF flows

Glassnode analysts said on Wednesday that a major factor affecting demand-side pressure for U.S. spot exchange-traded funds is institutional traders adopting a cash-and-carry arbitrage strategy.

According to analysts, since traders are buying bitcoin spot and immediately hedging it by selling bitcoin futures, this could reduce the immediate upward pressure on the spot price that would otherwise be seen if they were only buying the spot asset.

“Looking at the CME Group futures market, open interest has stabilized above $8 billion, after setting a new record high of $11.5 billion in March 2024. This may signal that an increasing number of traders from traditional markets are adopting a cash-and-carry arbitrage strategy,” Glassnode analysts said.

Analysts from Glassnode stated that this cash-and-carry trade structure seems to be a significant source of ETF demand. ETFs are being used as instruments to obtain long-spot exposure, while simultaneously, a growing net-short position for bitcoin is accumulating in the CME Group futures market.

What are cash-and-carry trades?

A cash-and-carry trade is a specific type of basis trade involving buying an asset in the spot market and simultaneously selling, or shorting, the same asset in the futures market. Investors make money if the difference between the spot and futures prices, the basis, narrows or becomes positive by the time the futures contract expires.

It is called "cash-and-carry" because the investor carries the position forward until the futures contract matures, while holding the spot position.

This arbitrage involves a market-neutral position, coupling the purchase of a long-spot position, and the sale of a position in a futures contract of the same underlying asset which is trading at a premium.