Arbitrage Trades Resurface in Ether's Latest Rally

Bitcoin's record-breaking rally has led hedge funds to revive a tried-and-true arbitrage strategy for Ether, known as the cash-and-carry trade. This strategy involves profiting from the discrepancy between spot and futures markets by selling futures and buying spot. The growing variety of futures contracts and ETFs has created an opportunity to apply this strategy to Ether, which has rallied 17% in the past week. Ether's failure to keep pace with Bitcoin has led researchers to expect the strategy to be used with smaller tokens as regulators approve a pipeline of altcoin ETFs.

The recent record-breaking rally of Bitcoin has prompted hedge funds to revive a classic arbitrage strategy, the cash-and-carry trade, for Ether (ETH). This strategy involves selling futures contracts and buying spot Ether to profit from price discrepancies between the two markets. The growing variety of futures contracts and ETFs has created an opportunity to apply this strategy to Ether, which has rallied 17% in the past week [2].

Ether's failure to keep pace with Bitcoin's performance has led researchers to anticipate that the strategy will be increasingly used with smaller tokens as regulators approve a pipeline of altcoin ETFs. The cash-and-carry trade is particularly attractive due to its delta-neutral nature, allowing traders to remain unaffected by price fluctuations while still capturing the spread between spot and futures markets [2].

The CME Group, a leading futures exchange, has seen a significant build-up of short positions on ETH futures, totaling $1.73 billion, as hedge funds capitalize on the price discrepancies between the spot and futures markets [2]. This strategy involves shorting ETH futures on the CME exchange while simultaneously buying spot ETFs, allowing traders to secure an annualized yield of up to 9.5% [2].

The involvement of hedge funds in the ETH market signals a maturing of the asset class. These funds are known for their sophisticated trading strategies and risk management techniques, and their participation in the ETH market indicates a growing acceptance of cryptocurrencies as a viable investment option. The basis trade is just one of the many strategies that hedge funds employ to generate returns in the volatile cryptocurrency market, and it highlights the potential for significant yields through arbitrage opportunities [2].

Despite the recent rally, some caution remains warranted. Not all ETH-focused treasury strategies have yielded favorable results historically. At press time, ETH trades at $2,993, up an impressive 7.4% in the past 24 hours [3]. The growing adoption of ETH by companies and investors, as seen with BitMine Immersion Technologies and GameSquare Holdings, further underscores the potential of the asset class [1, 3].

References:
[1] https://finance.yahoo.com/news/bitmine-immersion-surges-40-revealing-150417348.html
[2] https://www.ainvest.com/news/hedge-funds-short-eth-futures-9-5-annualized-yield-2507/
[3] https://bitcoinist.com/ethereum-adoption-grows-gamesquare-invests-5-million-in-eth-as-part-of-treasury-strategy/