Record-high short positions in Bitcoin futures contracts held by leveraged funds could be raising eyebrows, but experts have suggested this isn’t a sign of widespread pessimism among institutional investors, but rather a reflection of growing appetite for a market-neutral strategy.

That strategy, known as the basis trade, sees investors seek a profit off of the price discrepancies seen in spot and futures markets as by simultaneously buying Bitcoin in the spot market and selling futures contracts at a premium traders can profit while holding a market-neutral position.

According to Ravi Doshi, head of markets at prime broker FalconX, the basis trader’s popularity “can be observed through the short interest on CME BTC futures held by hedge funds,” as reported by Bloomberg, and added there are currently over $7.5 billion in net-short futures.

The launch of spot Bitcoin exchange-traded funds in the United States fueled the popularity of the basis trade, allowing investors to gain exposure to Bitcoin without directly holding it, while the price premium on futures contracts creates an arbitrage opportunity.

Investors can buy the ETF and simultaneously sell futures, profiting from the difference as the futures price adjusts. This cash-and-carry strategy has become easier to execute with the advent of ETFs, which are traded through regulated brokers.

However, analysts caution against mistaking the basis trade for the primary driver of investment flows into Bitcoin ETFs with Vetle Lunde, senior analyst at K33 Research, saying that  “organic directional demand is the key source behind the strong ETF flow”

Lunde pointed out that the basis, which represents the annualized premium on futures contracts, was significantly higher between late November and mid-March, hovering around 20%. Since then, it has settled between 11% and 16%, with a recent dip to around 6%.

As reported, major Bitcoin investors have recently opened massive long positions on the flagship cryptocurrency via popular cryptocurrency exchanges Bybit and HTX at around $69,000.

That’s according to Ki Young Ju, CEO of cryptocurrency analytics firm CryptoQuant, who pointed out that these massive long positions are interesting in light of similar activity seen back in August 2023, when Bitcoin whales opened large long positions on BTC ahead of a parabolic price rise that saw the cryptocurrency move from around $25,000 to a new all-time high above $73,500.