According to recent securities filings in the third quarter, hedge funds such as Millennium Management, Capula Management, and Tudor Investment have reportedly raised their stakes in U.S. spot bitcoin exchange-traded funds. This move comes amid a surge in a widespread arbitrage trade influenced by the upcoming elections.
President-elect Donald Trump championed digital assets throughout his campaign, vowing to implement favourable regulations and amass a national bitcoin reserve. This week, the cryptocurrency achieved a significant milestone by surpassing the $90,000 mark, reaching an all-time high, though it has since seen a reduction in its gains.
Amid price fluctuations during the election period, analysts report that certain hedge funds have been capitalising on the disparity between spot bitcoin and its derivatives in the futures market through leveraged trading strategies. The Securities and Exchange Commission approved spot ETFs earlier this year.
In the bitcoin basis trade, investors purchase spot bitcoin or its ETFs while shorting cryptocurrency futures, which have seen significantly higher prices this year. The gap expanded following the election results, peaking at 17% annually on November 11, according to CF Bitcoin data, before retracting to 12% by Friday.
Hedge funds are capitalising on that spread. “It establishes a highly strategic and opportunistic trading approach,” stated Gabe Selby, head of research at Kraken’s CF Benchmarks. “The return is uncorrelated.”
This week’s 13-F filings reveal that hedge funds have disclosed only their long equity positions, omitting any bets against share price declines or involvement in derivatives. Reuters could not ascertain whether particular hedge funds were engaging in such an arbitrage strategy only because they had established long positions.
Israel Englander’s Millennium has notably ramped up its investment in the cryptocurrency sector, more than doubling its holdings in the iShares Bitcoin Trust (IBIT.O) to 23.5 million shares. This increase brings the total value of its investment to $849 million, a significant rise from the previous quarter. The organisation has expanded its holdings in both ARK 21Shares Bitcoin and Bitwise Bitcoin funds.
The New York-based hedge fund concluded September with a substantial $1.7 billion invested in cryptocurrency exchange-traded funds, encompassing spot bitcoin and Ethereum funds. The exchange-traded funds represent a modest segment of the firm’s substantial $70 billion assets under management.
Capula, a macro hedge fund located in London, has increased its holdings in iShares Bitcoin Trust and Fidelity Wise Origin Bitcoin Fund, as revealed in an SEC filing on Thursday. The total value of those positions was approximately $600 million.
The hedge fund managed by Paul Tudor Jones Tudor has significantly ramped up its investment in the iShares Bitcoin Trust fund, boosting its share count fivefold to a total of 4.4 million shares.
Schonfeld Strategic Partners, a hedge fund, has increased its holdings in bitcoin funds by acquiring additional shares.
Millennium and Tudor have chosen not to provide a statement regarding their positions. Other hedge funds have yet to respond to the situation.
Should hedge funds maintain their positions throughout the fourth quarter, they may be positioned to achieve significant gains. Since late September, spot bitcoin ETFs have experienced an increase of approximately 40%, a surge primarily attributed to the outcomes of the U.S. presidential election.
Given bitcoin’s significant price fluctuations, numerous hedge funds opt for more neutral trading strategies that avoid making directional bets on its ascent or decline.
David Duong, who leads institutional research at Coinbase, reported that the bitcoin basis trade has seen an upward trend over the past few weeks. As the election approached, he noted several clients wanted increased credit lines to facilitate trading.