During the initial week of February, Ethereum ETFs in the U.S witnessed impressive performances, attracting higher inflows than their Bitcoin ETF counterparts. Data compiled by SoSo Value and Farside Investors revealed that ETH ETFs received $420M in inflows, surpassing the $173M recorded by BTC ETFs.
Some observers pointed out that this trend indicated that significant players took advantage of the discounted opportunity presented by the ETH de-leveraging incident earlier in the week.
Contrary to this perspective, analysts from Coinbase, headed by David Han and David Duong, clarified that the dominance in ETH ETF flows was primarily fueled by institutional investors interested in ETH ‘basis trade.’
The Concept of CME Ethereum Basis Trade
The CME ETH basis trade involves an arbitrage strategy where institutional investors purchase ETH in the Spot market and short it on the Futures market, profiting from the variance (yield or basis). This practice is common for both ETH and BTC.
However, Han and Duong highlighted that the CME ETH basis trade showed a higher yield than BTC during that week. They suggested that many major players engaged in ETH by buying Spot ETH ETFs and shorting the CME Futures.
“It’s worth noting that the CME ETH basis trade has consistently delivered higher annualized yields compared to the CME BTC basis trade in recent days. This trading strategy could be one of the reasons behind the significant inflows observed in spot ETH ETFs of late.”
As illustrated in the provided data, the CME ETH yield spiked to 16%, while the CME BTC basis hovered around 10%. In essence, ETH trading presented more lucrative risk-reward prospects than BTC over the past seven trading sessions.
Further supporting this argument was the substantial increase in inflows into ETH Futures compared to BTC since the U.S elections in November 2024. The analysts pointed out that the Open Interest rates (OI) in ETH Futures surged from 354K ETH to 1.13M ETH by early February 2025.
In contrast, CME BTC Futures saw stagnant inflows during the same period. Han and Duong highlighted,
“CME BTC futures have not experienced a similar growth in open interest, with CME open interest remaining relatively stable (173K BTC on November 1, 2024, to 169K BTC on February 6, 2025).”
Nevertheless, the analysts also suggested that ETH’s price might experience a subdued performance in the near term due to unfavorable funding rates and stiff competition from Solana.