- Hedge funds are aggressively shorting Ethereum, but institutions are buying.
- Basis trading allows hedge funds to profit from price differences.
- Altcoin market cycles may still follow historical patterns despite new dynamics.
Ethereum’s market is at a critical juncture as hedge funds take aggressive short positions while institutional investors continue accumulating. Data from CME reveals that leveraged funds’ net short positions have surged by 40% in a week and 500% over the past three months.
This sudden increase in short bets might look ominous at first, but a closer look reveals it’s not as bearish as it appears. A more detailed look at institutional trading strategies shows that hedge funds are using a strategy called basis trading, which allows them to profit even while they short Ethereum.
The Basis Trade: Profiting from Market Gaps
Basis trading is one of the most popular arbitrage strategies that takes advantage of price discrepancies between futures and spot markets. CME Ethereum futures are trading at a 1-1.5% premium to spot prices.
Hedge funds exploit this by buying Ethereum in the spot market and shorting its futures contracts. This allows them to gain from the short-term premium along with being in a good position for potential long-term gains if the price of Ethereum increases.
To add to this trend, institutional investors have put over $3 billion into Ethereum ETFs since the U.S. elections, even outpacing Bitcoin inflows last week. This suggests that smart money purchases, whereas retail traders may be misled into selling too soon.
Historical Patterns Suggest an Altcoin Surge
Along with Ethereum’s market dynamics, altcoin traders are looking at previous cycles for indications of the next big move. Data shows that the previous altcoin seasons followed a predetermined timeline. The 2017 boom began in December 2016, and the 2021 cycle started in January 2021.
Most notably, a strong historical signal has manifested—exactly 1,491 days since the last bull run, a timeframe that an altcoin breakout has traditionally followed. If the cycle is still in effect, the market could be set up for the next parabolic phase for altcoins.
Will the 1,491-day Cycle Hold?
Despite historical trends, the altcoin market has different conditions today. Unlike in previous cycles, capital is now spread out across a range of Layer 1 ecosystems like Solana, BNB, and Ethereum, making market movements all the more unpredictable.
The question is: Will this 1,491-day cycle bring about another altcoin boom, or are changing market dynamics fundamentally altering how altcoins perform relative to Bitcoin? With institutional inflows increasing and hedge funds using complex strategies, the crypto market finds itself at a crossroads.