Crypto ETF Inflows Explode—Is This the Basis Trade’s Dirty Work or Just Diamond-Handed HODLers?
Wall Street’s latest crypto love affair has a twist: ETF inflows are surging, but who’s really driving the demand? Hedge funds exploiting arbitrage with the ‘basis trade,’ or retail investors finally getting their diamond-handed revenge?
The basis trade—where pros short futures while gobbling up spot ETFs to pocket the spread—smells like the same old synthetic demand that blew up in 2018. But this time, the SEC greenlit the playground.
Meanwhile, retail’s ‘buy and never sell’ mantra might actually be winning for once—if they can resist the siren song of leverage. Either way, the irony’s thick: crypto’s anti-establishment ethos now thrives on… wait for it… regulated financial products. Cue the Goldman Sachs alumni memes.
Nearly $3.1 billion went into US spot bitcoin ETFs, according to Farside Investors data. Their Ethereum counterparts got some love too, as the $183 million of net inflows broke an eight-week outflow streak.
“We believe concerns over the tariff impact on corporate earnings and the dramatic weakening of the US dollar are the reasons investors have turned towards digital assets, which are being seen as an emerging SAFE haven,” CoinShares’ James Butterfill noted.
The key word is “emerging,” as Bitcoin more recently decoupled from tech stocks (at least temporarily). BTC was trading around $94,130 at 2 pm ET — up 10.5% from a week ago.
It’s difficult to sort out which type of investors these inflows are coming from.
Bloomberg Intelligence’s Eric Balchunas noted the speed at which the bitcoin ETF inflows picked up in an X post, adding: “Prob some is basis trade back in effect, that’s the fast money that tends to come in and out [with] price.”
He’s referring to hedge funds seeking to profit from the “basis spread” — the difference between BTC’s futures and spot prices. We do know from Q1 13F filings that hedge funds represent ~37% of the spot bitcoin ETP assets under management (AUM) that is held by professional investors.
Outside this pro investor cohort that discloses BTC holdings in filings, however, are individual investors and smaller financial advisors that also represent “a significant portion” of the investment activity we’re seeing, Bitwise research head Ryan Rasmussen told me.
“Given that, I’d assume the flows this week were primarily driven by long-term investors and a less meaningful portion was driven by hedge funds deploying the basis trade,” he added.
And separately (but ETF-related), two quick clarifications as some XRP product headlines might be misleading readers:
First, the proposed XRP funds by ProShares are futures-based offerings, not spot. Also, a ProShares spokesperson told me that while some have reported those going live on Wednesday, the firm has no plans to launch them then. Keep in mind, too, that CME Group isn’t set to introduce XRP futures contracts until May 19.
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