Bitcoin Futures Cash-And-Carry Trade Profitability Tanks, Caution Ahead?

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As an experienced analyst, I’ve closely observed the Bitcoin market for years, and I can’t help but notice the recent decline in profitability for cash-and-carry trades in Bitcoin futures. Just a few weeks ago, traders were locking in nearly risk-free annualized premiums of 10%, making these trades incredibly attractive. However, as we speak, that premium has dropped to just 6% – technically only 3% when considering the cost of holding Bitcoin in the spot market.

From a researcher’s perspective, I have observed that as the selling pressure on Bitcoin (BTC) prices intensifies, the excitement in the Bitcoin futures market appears to wane. The profitability of the cash-and-carry trade in Bitcoin futures has been dwindling at an accelerated rate, leaving minimal opportunities for traders to generate substantial gains.

Bitcoin Cash-and-Carry Trades

In the thriving derivatives market, the cash-and-carry technique is widely used. This method entails purchasing an asset in its current form (the spot market) and immediately selling the equivalent future contract for that same asset.

Approximately a month ago, Bitcoin futures traders had the opportunity to secure a nearly risk-free 10% return per annum through cash-and-carry trades. In other words, the annualized gap between the Bitcoin futures and the Bitcoin spot prices stood at 10%.

As a crypto investor, I’ve noticed that in order to hold Bitcoin and use futures contracts with margin, traders need to have sufficient capital on hand. This requirement reduces my potential returns by approximately 5%. Surprisingly, the annualized premium for this service has recently decreased to around 6%, or equivalently, a net gain of only 3% after factoring in the cost of holding Bitcoin in the spot market.

As a crypto investor, I’ve noticed that when the annualized returns for the Bitcoin cash-and-carry trade dip below the risk-free return, it becomes less enticing for me to engage in such trades. Analyst Checkmate echoes this sentiment, pointing out that the “juice” or profitability in Bitcoin futures trades has diminished, making them unattractive. Consequently, I might consider exploring other investment opportunities as the potential rewards from Bitcoin futures cash-and-carry trades no longer seem sufficient to offset the inherent risks.

In simpler terms, it seems that the opportunity for profitable gains from buying Bitcoin futures and immediately settling the contract, also known as the “cash-and-carry” trade, may be coming to a close.

Approximately two weeks ago, investors could secure a nearly risk-free return of around 10%, yearly, by simultaneously holding the spot market position and selling the corresponding futures contracts. In essence, this strategy equates to a profit of approximately 5% as capital is required for both transactions.

— _Checkmate (@_Checkmatey_) June 24, 2024

BTC Price Movement Ahead

As a Bitcoin analyst, I’ve noticed that the cryptocurrency’s price has corrected more than 12% from its June highs. Some experts are now predicting that we may see the $60,000 mark soon. Additionally, based on my analysis of the sell-side risk ratio, it appears that a significant shift is imminent in the Bitcoin market.

As a researcher studying the Bitcoin market, I’ve observed that all profits and losses have been realized. Consequently, the Bitcoin market will form a new price range, which is likely to evoke strong emotions such as fear, greed, panic, or euphoria among investors, setting the stage for the next phase of market activity.

In the lower time frame, the Bitcoin price is presently shaping up as a falling wedge pattern, increasing the likelihood of a drop down to $60,000.

In the Bitcoin short-term chart, the price action of $BTC appears to be shaping as a falling wedge pattern. This formation is typically followed by a breakout, signaling an opportunity for entering into a trade. However, always avoid initiating a trade without proper analysis and confirmation.
— Crypto Patel (@CryptoPatel) June 22, 2024

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2024-06-24 07:00