When Bitcoin rebounded from $62,000 to over $77,000 in just a few days last week, the short squeeze wiped out roughly $3 billion from traders betting on falling prices. But for a group of market-making firms, the rally was not an opportunity to guess direction, but rather a chance to pocket profits from funding rates.
Abraxas Capital, Fasanara Capital, and Wintermute have quietly built hundreds of millions of dollars in short positions on Hyperliquid, an on-chain derivatives exchange. According to Lookonchain data, these three firms hold short positions of 138,569 ETH (~$338 million) and 3,425 BTC (~$265 million). Concurrently, Abraxas withdrew 73,872 ETH (~$173 million) from Binance over four days, confirming a strategy of holding spot off-exchange.
The strategy of these three institutions is straightforward: cash-and-carry or delta-neutral. They buy spot while simultaneously shorting an equivalent amount via perpetual futures. The two positions offset each other, virtually eliminating price volatility risk. What they collect is the funding rate, a periodic payment that long traders pay to short traders when the market is in a bullish state.
BTC funding rates have rebounded sharply after months of compression. According to the Aegis protocol, the 30-day average of BTC perpetual funding rates reached 6.7% annualized on August 24, while the 7-day average reached 8.7%—an attractive risk-free yield given the massive operating scale of these funds. From February to July, funding rates were compressed or negative as the market sold off from its $120,000 peak, causing the basis trade to stop generating returns.
This strategy is not playing out solely on on-chain exchanges. Open interest in Bitcoin futures on the CME, the standardized venue for institutional investors, jumped from around 87,000 BTC to 122,000 BTC. CryptoQuant data shows that hedge funds on the CME have recently flipped to a net long stance on Bitcoin—a relatively rare occurrence since the basis trade typically forces hedge funds to short futures to hedge spot; turning net long means they are abandoning hedges and genuinely betting on an upward trend. That is what truly warrants the market’s attention!
The resurgence of the basis trade signals two things. On the one hand, it shows that the crypto market once again offers attractive “risk-free yields” for institutional funds after months of scarcity. On the other hand, some traders warn that when long leverage is crowded alongside positive funding rates, the risk of a sharp flush or a breakout both carry high probabilities. For funds with large balance sheets, this remains an appealing environment; however, for retail investors, interpreting funding rates as a straightforward directional signal could prove to be a trap.