Cross-Market Bitcoin Hedges Face Liquidation Risk

Bitcoin funds can remain profitable overall yet face liquidation when collateral is split between exchanges. A fund may hold a long perpetual contract on Hyperliquid and an equivalent short futures position at CME, with gains on one trade intended to offset losses on the other.

In a hypothetical example, each position is worth $4.5 million. If Bitcoin falls 20%, the CME short would gain about $900,000 while the Hyperliquid long would lose a similar amount, assuming both contracts track Bitcoin equally. The fund would have little net loss from the price move, but Hyperliquid could still require more collateral for the losing position.

Profits at CME may not be available to meet that demand. Transfers between venues can take time, withdrawals can be restricted and a profitable position may not be closed quickly enough to provide cash. If Hyperliquid liquidates the long first, the fund would retain the CME short without its hedge and lose money if Bitcoin rebounds.

Ian Weisberger, chief executive of trading technology provider CoinRoutes, cited exchange liquidations during the October 2025 crypto crash as an example of how one venue can close a position without considering trades held elsewhere.

Leverage can increase the exposure. In another hypothetical example, a fund deposits $1 million in USDC, borrows $2 million and allocates $1.5 million to each of CME and Hyperliquid. Derivatives allow it to establish a $4.5 million long position and a $4.5 million short position, creating $9 million in gross exposure.

The strategy seeks returns from differences between futures prices, perpetual funding payments or other market discrepancies rather than from Bitcoin’s direction. A 1% gap between two $4.5 million positions would equal $45,000. The fund would need collateral for price gaps, changing funding costs and higher margin requirements before the markets converge.

Traditional prime brokers coordinate financing and collateral across markets. Crypto funds often keep separate pools of assets at each exchange because venues use different margin and settlement rules.

CRX Trade, a Swiss institutional prime brokerage operated by RAS Capital and built on CoinRoutes technology, is developing a system for managing collateral across venues including Hyperliquid and CME. Its risk system assesses positions across a portfolio and can reduce exposure before an exchange forces liquidation.

One method, called delta-neutral liquidation, seeks to close both sides of a hedge together. Another reduces the position that leaves the fund with more directional exposure. The system cannot guarantee that an exchange will process orders during an outage or that buyers will be available at a reasonable price. Exchanges retain the authority to liquidate positions that do not meet margin requirements.

CRX also permits clients to use Bitcoin holdings to support trades in markets where Bitcoin is not accepted directly as collateral. In Weisberger’s example, a client holding $1 million in Bitcoin sells $500,000 of the holdings and replaces that exposure with Bitcoin futures or perpetual contracts. The cash can support CME trading through the platform’s USDC infrastructure, while the derivative position has separate margin and financing costs.

Where available, CRX uses tri-party settlement, keeping collateral with a separate custodian and settling profits and losses at intervals such as eight or 24 hours. This can limit the assets directly exposed to an exchange withdrawal freeze, but it does not prevent trading interruptions or remove risks tied to the custodian, lenders or exchange agreements.

Loans arranged through the platform generally run for 30 to 90 days. Lenders can decline to renew them, requiring a fund to repay or refinance its positions even when the strategy is profitable. Exchange margin requirements and derivative funding costs can change during the loan period, creating additional demands for cash.