The Bitcoin futures market recently hit a new all-time record, with open interest reaching a staggering $36.3 billion, equivalent to more than 500,000 BTC.
Analysts said that behind this phenomenon is that traders are using a strategy called "cash and arbitrage" to achieve risk-free returns.
Related to cash and carry trades
James Check, chief analyst at Glassnode, noted that the growth is closely related to sophisticated arbitrage operations conducted by institutional traders between Bitcoin futures and spot markets.
In a newsletter on Tuesday, Check speculated that leveraged funds were shorting Bitcoin on the Chicago Mercantile Exchange (CME) while also buying an equal amount of Bitcoin through a Bitcoin spot ETF.
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“These traders hold a delta-neutral position where they have an equal number of long and short positions, which means they are not exposed to risk regardless of how the price of Bitcoin moves,” Check said in the report. This strategy ensures that traders remain risk-neutral in the face of market volatility as their gains and losses offset each other.
This strategy is often referred to as the "cash and carry trade" and is widely used by traders when there is a significant price difference between the commodity futures market and the spot market. This situation is particularly common in the Bitcoin market, where traders in perpetual swap contracts are currently willing to pay premiums of up to 10% to the short side in exchange for the opportunity to use leverage to trade long Bitcoin. This operation allows them to take advantage of market pricing differences to gain profits while controlling risk.
In a post published by Check, it is mentioned that with Bitcoin trading at $68,400 and the December 2024 futures contract trading at $73,200, users of cash and carry strategies can actually earn an annualized return of 6.4% with very low risk.
“Unless traders make serious mistakes in collateral management, these positions are unlikely to be at risk of margin calls or liquidations,” Check added.
Bitcoin arbitrage traders increase
Bitcoin arbitrage trader activity has increased significantly this year. Since the beginning of the year, Bitcoin futures open interest has increased by 21%, or 92,000 BTC, in BTC terms and by 100% in USD terms. Particularly on the Chicago Mercantile Exchange (CME), the major institutional futures trading platform in the United States, open interest has grown particularly rapidly.
James Check observed that despite the recent weekly inflows of 25,000 BTC, Bitcoin price volatility has been relatively small. He believes that this phenomenon can be partly attributed to the emergence of Bitcoin ETFs, which provide new investors with opportunities to conduct cash and carry trades that were previously mainly conducted by companies in the cryptocurrency space.
Check also pointed out that although spot and arbitrage trading add depth to the market and promote close correlation between the spot market and the futures market, their net effect on the rise or fall of Bitcoin prices is actually small. He concluded that what is needed for the market to become active again is a strong push from non-arbitrage demand that will outweigh the pressure from spot sellers from long-term holders and existing holders. #比特币期货 #未平仓合约 #比特币 #套利策略
Conclusion:
The open interest in the Bitcoin futures market has reached a historic high of $36.3 billion, revealing the activeness of arbitrage traders in the market and their impact on market depth and price stability. Through sophisticated “cash and carry” strategies, traders have cleverly operated between the Bitcoin spot and futures markets to achieve low-risk returns.
Although this strategy has limited direct impact on Bitcoin prices, it enhances the liquidity and close connection of the market. However, for the market to achieve further activity and price dynamics, it still needs to rely on the strong push of non-arbitrage demand. This demand will stimulate new vitality in the market, surpass the spot seller pressure of existing holders, and bring new growth momentum to the Bitcoin market.