Record Ether Shorting Emerges as Hedge Funds Pour Into Basis Trading

Hedge Funds Short Ether for Yield as Basis Trade Gains Momentum

Hedge funds are significantly increasing their short positions in ether (ETH), aiming to capture lucrative yields through basis trading as prices hover near the $3,000 mark.

Data from the CFTC, cited by The Block, shows hedge funds have amassed $1.73 billion in ETH short positions on the CME, a key platform for institutional traders. Further analysis from zerohedge confirms that leveraged net positions on the CME are heavily skewed toward the short side.

A basis trade involves simultaneously shorting futures contracts and purchasing the underlying asset, maintaining a delta-neutral stance that limits directional price risk. In the current market, traders can secure an annualized yield of roughly 9.5% by shorting ETH futures on the CME while holding spot ether ETFs, which collectively oversee around $12 billion in assets.

Supporting this strategy, Coinglass reported a record $421 million in inflows into ether ETFs on Thursday alone—a surge that has been building steadily since early May.

Hedge funds could also boost their returns by staking the spot ETH they acquire, potentially earning an additional 3.5% per year. However, this option isn’t available for ETF investors, as custody of assets remains with the ETF providers.

Last year, bitcoin (BTC) was the preferred asset for basis trades, but those yields collapsed in March, temporarily cooling inflows and dampening market activity.