Written by: Xiaobing

Recently, Bitcoin surged from around $62,000 to over $77,000. In three days, $3 billion in leveraged short positions were forcibly liquidated, with over 170,000 traders getting wiped out. The bloodbath among retail shorts is the most intuitive annotation of this short squeeze rally.

At the same time, the on-chain data tracking platform Lookonchain marked three addresses: Abraxas Capital, Fasanara Capital, and Wintermute. The three institutions collectively held short positions of 138,569 ETH (approximately $338 million) and 3,425 BTC (approximately $265 million) on Hyperliquid, with a total scale exceeding $600 million. These positions remained safe, with liquidation prices far above the current market price.

Upon seeing this, a natural reaction is: Whales are bearish, and a crash is imminent; indeed, such panic narratives are pervasive on social media.

But the fact is exactly the opposite.

On-chain data from Arkham Intelligence shows that Abraxas Capital withdrew 73,872 ETH from Binance in four days, worth approximately $173 million.

Holding a large amount of spot while shorting is not betting on direction; this is a carefully balanced hedging trade.

Machines are printing money, not gambling with lives

This strategy is called cash-and-carry or basis trading.

The logic is very simple: buy spot and short an equivalent amount of perpetual contracts. The two legs hedge each other, and price fluctuations have almost no impact on the position holders. What do they make? Funding rates.

Perpetual contracts have no expiration date, and exchanges use the funding rate mechanism to anchor contract prices to the spot price. When the market is bullish, longs pay shorts a fee every 8 hours. In a bull market, this fee remains positive, and shorts effectively collect rent.

According to crypto protocol Aegis, as of August 24, the 30-day average funding rate for BTC perpetual contracts has rebounded to 6.7%, with the 7-day average reaching 8.7%. 21shares Capital Markets described the current basis level as "rich," meaning it is attractive to arbitrageurs but not yet overheated.

To translate these numbers: an institution using $265 million for this trade, with an annualized funding rate of 8.7%, can extract about $23 million in funding income from the market each year, while its directional risk is close to zero.

This is the core message that Wintermute CEO Evgeny Gaevoy publicly countered when responding to media reports. He criticized the shallow interpretation of market makers' short positions, emphasizing that these positions represent "neutral inventory management and premium collection," not bearish speculation.

A window that has been closed for half a year reopens

Basis trading is not a new trick; this window has just reopened.

Glassnode data shows that from February to July this year, the annualized funding rate for BTC perpetual contracts was long under compression or even turned negative. Previously, Bitcoin fell from its historical high, with leveraged longs continuously washed out, and longs no longer paid shorts, causing arbitrage trading to lose its revenue source. In a negative funding rate environment, holding shorts actually costs money.

The surge in August changed everything. Following the liquidation of leveraged shorts, market sentiment quickly turned bullish, and retail investors resumed leveraging long positions, causing funding rates to quickly turn positive. Market makers saw a window to rebuild positions and immediately entered the market.

Abraxas withdrew a large amount of ETH spot from Binance while simultaneously establishing shorts on Hyperliquid. Wintermute's short exposure on Hyperliquid expanded from $146 million to $191 million, while it deposited about $98.7 million worth of BTC on Binance for market-making quotes. Onchain Lens, an on-chain analysis platform, commented on this as: textbook market maker operations.

Abnormal signals from CME

Basis trading is not only happening on-chain. Traditional institutions' main battleground, CME, is also heating up.

Glassnode data shows that CME Bitcoin futures open interest recently jumped from about 87,000 BTC to 122,000 BTC. This increase corresponds to a large influx of new funds.

Interestingly, data from CryptoQuant reveals an unusual change: hedge funds on CME have recently shifted from net short to net long. This is rare. Normally, institutions hold short positions (short futures, long spot or ETF) when making basis trades on CME. When this group collectively turns bullish, it means that at least some institutions are no longer satisfied with risk-free rent collection and are starting to bet on direction.

These two signals combined indicate that the current market structure is splitting: one part of smart money is steadily performing basis arbitrage in on-chain venues like Hyperliquid; another part of smart money is quietly increasing directional longs on CME. The former is earning certainty, while the latter is betting on trend continuation.

The open interest for ETH perpetual contracts has also risen to $14 billion (according to Coinalyze), reaching a high in months, indicating that this structural change is not limited to BTC.

Who is paying for this harvesting

The profits from basis trading do not appear out of thin air. Every penny in funding rates received by market makers comes from the leveraged longs on the other side. When retail investors leverage long Bitcoin at 5x or 10x, they have to pay the market makers' short positions a fee every 8 hours until they close their positions.

This transfer is continuous, automatic, and silent.

Last week's $3 billion liquidation figure was shocking, but that was just a short-term sharp pain.

The continuous outflow of funding rates is the real chronic bleeding. A retail investor who goes long BTC with 10x leverage, under an annualized funding rate of 8.7%, has about 0.024% of their position value quietly flowing to the opposing shorts every day. The amount is small and easily overlooked, but it accumulates day after day.

Market makers do not need Bitcoin to rise to $100,000, nor do they need it to fall back to $50,000. They only need one thing: you continue to go long.

Trader @LLuciano_BTC observed that although the funding rate has turned positive, Bitcoin's price has not significantly broken through the current range. He described this state as "fragile": long positions expand ahead of price confirmations, and once momentum stagnates, longs may face a washout, while if the breakout succeeds, shorts are forced to chase.

For institutions doing basis trades, both outcomes are inconsequential. If the price rises, the spot earns money while the perpetual shorts lose money, with net value unchanged, and fees continue to be received; if the price falls, the spot loses money while the perpetual shorts make money, with net value unchanged, and fees continue to be received.

Retail investors are betting on price fluctuations while market makers are collecting tolls; these are two completely different games.