A Word About "Arbitrage"...

[traderjo]

You can't buy BTC on CME, only futures. I'm pretty sure they're cash settled. Bitcoin only exists in the conventional markets as custodial fund instruments like Grayscale. You can't trade it directly on the CME. But I'm not expert on the latest developments, so I'm not sure what's possible and not now.

You can do both underlying and future - the entire trade - on Binance, Deribit, Bitmex or ftx. Others, too, but those are well-vetted exchanges with solid security. Some people don't like Bitmex because they think the exchange gives back-door kickbacks to market makers. I don't know if it's true or not.
ftx has the best spreads. Deribit has the best margin structure. Binance has the best liquidity, but I don't know about it's US citizen policy.

Does anybody has screen shots fo actual fills for both legs? or it is just a theory!
so if what you say is true then the carry type trade like this is via those 4 "exchanges" with their own spot BTC and BTC futures! and these exchanges do give margin offset? .. h...m I still think there is risk like SIG mentioned below. so it is not really a risk less Carry trade !

 

[traderjo]

You can't buy BTC on CME, only futures. I'm pretty sure they're cash settled. Bitcoin only exists in the conventional markets as custodial fund instruments like Grayscale. You can't trade it directly on the CME. But I'm not expert on the latest developments, so I'm not sure what's possible and not now.

You can do both underlying and future - the entire trade - on Binance, Deribit, Bitmex or ftx. Others, too, but those are well-vetted exchanges with solid security. Some people don't like Bitmex because they think the exchange gives back-door kickbacks to market makers. I don't know if it's true or not.
ftx has the best spreads. Deribit has the best margin structure. Binance has the best liquidity, but I don't know about it's US citizen policy.

You can't buy BTC on CME, only futures. Yes true

 

[traderjo]

So none of those futures are U.S. regulated. Which makes them risky to the tune of the amount of risk premium you're getting. The only legitimate arb would be with CME or ICE bitcoin futures but because you can't also hold actual BTC at any broker where you hold your CME or ICE futures (can you?) then you're left in the position of having to make exchanges from your BTC to USD to your broker back and forth in response to your margin changing with price moves. Which again about evens out the arb opportunity.

Indeed there is risk .. the example here on one of the exchanges talks about one leg on Deribit and one leg on Coinbase.. Not to mention no cross margin, risk of the exchange being less regulated as compared to major true exchanges . issues with Bitcoin assets disappearing from exchanges etc..

 

[misterkel]

Does anybody has screen shots fo actual fills for both legs? or it is just a theory!
so if what you say is true then the carry type trade like this is via those 4 "exchanges" with their own spot BTC and BTC futures! and these exchanges do give margin offset? .. h...m I still think there is risk like SIG mentioned below. so it is not really a risk less Carry trade !

You can do the entire trade on a single exchange. You do NOT need to arbitrage across exchanges. It's a known trade called futures arbitrage. It's not new, it's just hard to find in conventional markets with a return greater than risk-free yield. I believe you can do futures arb on SPX, but the returns are not worth it, however, I don't trade conventional futures, only crytpo-futures.

Here it is on ftx (I just did a small trade):

As you can see, I bought BTC at 57,100 and sold the June futures at 61,195. That's an absolute return of 7.18% ((61195-57100)/57100 = .0178) or an annualized return of .0718 X 4 (the expiry is in 3 months) = 28%.

I do these trades all the time. There is some risk:
1) The underlying goes parabolic and the spread widens. This can push you into leverage even if you aren't leveraged. However, the settlement will always yield the return at expiry. It frequently happens earlier if BTC crashes and the term structure goes into backwardation.

2) Exchange risk. Certain exchanges are very risky, others are very secure and have a strong reputation and track record, with well-vetted teams and great transparency. You do need to perform your own homework. Binance is hands down the most well established and has solid security. It is regulated, but differently than conventional exchanges. Coinbase is also regulated, but has extremely high fees. It's for amateurs and first-time buyers, NOT for legit traders.
I trade ftx, because I've seen them in action and have done my research. The site is very secure, and very flexible with many ways to profitably trade.

Here is a shot of the chart for the March futures (3 days from expiry) with BTC also included. You can see the gradual price convergence.

You can believe me or not. I don't care really. I'm just trying to share a legit opportunity that's been a relatively good trade.
thanks.

 

[Sig]

You can do the entire trade on a single exchange. You do NOT need to arbitrage across exchanges. It's a known trade called futures arbitrage. It's not new, it's just hard to find in conventional markets with a return greater than risk-free yield. I believe you can do futures arb on SPX, but the returns are not worth it, however, I don't trade conventional futures, only crytpo-futures.

Here it is on ftx (I just did a small trade):
View attachment 255333
As you can see, I bought BTC at 57,100 and sold the June futures at 61,195. That's an absolute return of 7.18% ((61195-57100)/57100 = .0178) or an annualized return of .0718 X 4 (the expiry is in 3 months) = 28%.

I do these trades all the time. There is some risk:
1) The underlying goes parabolic and the spread widens. This can push you into leverage even if you aren't leveraged. However, the settlement will always yield the return at expiry. It frequently happens earlier if BTC crashes and the term structure goes into backwardation.

2) Exchange risk. Certain exchanges are very risky, others are very secure and have a strong reputation and track record, with well-vetted teams and great transparency. You do need to perform your own homework. Binance is hands down the most well established and has solid security. It is regulated, but differently than conventional exchanges. Coinbase is also regulated, but has extremely high fees. It's for amateurs and first-time buyers, NOT for legit traders.
I trade ftx, because I've seen them in action and have done my research. The site is very secure, and very flexible with many ways to profitably trade.

Here is a shot of the chart for the March futures (3 days from expiry) with BTC also included. You can see the gradual price convergence.
View attachment 255335

You can believe me or not. I don't care really. I'm just trying to share a legit opportunity that's been a relatively good trade.
thanks.

The delta between the cash and futures of SPX is the risk free rate adjusted for dividends.

The ftx exchange that offers futures that you're using isn't regulated in the U.S. (or open to U.S. customers), although ftx does have a U.S. exchange to just exchange BTC into USD or other currencies. This tells us that ftc does want to play in the U.S. market, but their futures operation doesn't meet U.S. standards. That's your risk premium.

 

[tsznecki]

@misterkel You know this has been discussed on the interwebs so it's not top secret or anything, but one should really strive to not give away edge where possible.

You may consider deleting much of your posts above ^.

Anyways FWIW, the trade needs to be executed off CME/ICE BAKKT to make sense unless you are moving 7 figs.

I also find it hilarious that some people think that if it's not CME, it's not legit. CME/traditional exchanges are the dinosaur in the room re: digital assets.

 

[Sig]

@misterkel You know this has been discussed on the interwebs so it's not top secret or anything, but one should really strive to not give away edge where possible.

You may consider deleting much of your posts above ^.

Anyways FWIW, the trade needs to be executed off CME/ICE BAKKT to make sense unless you are moving 7 figs.

I also find it hilarious that some people think that if it's not CME, it's not legit. CME/traditional exchanges are the dinosaur in the room re: digital assets.

Partial list of Bitcoin "exchanges" hacked/shut down/turned out to be frauds in just the last 3 years!
Altsbit
Upbit
VinDAX
Bitpoint
Bitrue
GateHub
Binance
DragonEx
Bithumb
CoinBene
CoinBin
Coinmama
Cryptopia
QuadrigaCX
MapleChange
Zaif
Coinrail
Bitcoin Gold
Taylor
CoinSecure
Bitgrail
Coincheck

List of U.S. regulated exchanges hacked/shut down/turned out to be frauds in the last 3 decades:

There's a reason there's a risk premium on unregulated "exchanges". Some may well be "legit", but recent history shows us that there are a heck of a lot that aren't. Where as regulated exchanges are batting 100% on reliability since CFTC was established. Hard to argue with that.

 

[tsznecki]

Partial list of Bitcoin "exchanges" hacked/shut down/turned out to be frauds in just the last 3 years!
Altsbit
Upbit
VinDAX
Bitpoint
Bitrue
GateHub
Binance
DragonEx
Bithumb
CoinBene
CoinBin
Coinmama
Cryptopia
QuadrigaCX
MapleChange
Zaif
Coinrail
Bitcoin Gold
Taylor
CoinSecure
Bitgrail
Coincheck

List of U.S. regulated exchanges hacked/shut down/turned out to be frauds in the last 3 decades:

There's a reason there's a risk premium on unregulated "exchanges". Some may well be "legit", but recent history shows us that there are a heck of a lot that aren't. Where as regulated exchanges are batting 100% on reliability since CFTC was established. Hard to argue with that.

Sig, you are one of the better posters on ET so I'm gonna to address your deficiencies first then give you an out.

1)Binance got hacked and then made their users whole. Kraken and Bitstamp got hacked. CME still uses Kraken+Bitstamp in their BTC index. Care to share why that is?

https://www.cmegroup.com/trading/cr...irect=/trading/cf-bitcoin-reference-rate.html

2)Bitcoin Gold isn't even an exchange. It's a crypto. Your lack of research has me this close to not keeping this civil.

3)CME doesn't set the worldwide pricing of BTC/crypto. Spot exchanges that get hacked do. CME/ICE is the tail. 0 market influence.

4)"Risk premium"? I think you are confusing futures basis with "risk premium". Take a look at spot prices across crypto exchanges, the ones with a higher price out of line are the counterparties with issues. What @misterkel is talking about here is the futures basis.

I would suggest you do a lot more reading and research in this space before you try to state opinions as facts. There are a surprising amount of people on ET whose knowledge base crushes any traditional funds analyses.

 

[misterkel]

@misterkel You know this has been discussed on the interwebs so it's not top secret or anything, but one should really strive to not give away edge where possible.

Yeah, I don't see it as an edge since it's right there in the open on every crypto futures exchange. It's not my main trade, either. Just a side hustle, really.

The reason it exists is because most traders want to leverage up on futures and you can't do that on the underlying. Therefore, if half of the traders want this arb and half want the futures longs, then the futures longs will swamp the arbs because they are leveraging.
And it's true. If you leverage up and get direction right, your ROR will be many, many times the arb ROR. But... the risk is just as big in the opposite direction. In fact, the risk overwhelms the reward mostly because of the outsized premium potentially going negative. In which case, you cough up the downside PLUS the premium vomit. It's a bad trade, but when it works, BAM! You can 10-bag it in a week.
cheers, mate. thanks for your other post, btw. It's good to see someone who understands the crypto differences.

 

[Sig]

Sig, you are one of the better posters on ET so I'm gonna to address your deficiencies first then give you an out.

1)Binance got hacked and then made their users whole. Kraken and Bitstamp got hacked. CME still uses Kraken+Bitstamp in their BTC index. Care to share why that is?

https://www.cmegroup.com/trading/cr...irect=/trading/cf-bitcoin-reference-rate.html

2)Bitcoin Gold isn't even an exchange. It's a crypto. Your lack of research has me this close to not keeping this civil.

3)CME doesn't set the worldwide pricing of BTC/crypto. Spot exchanges that get hacked do. CME/ICE is the tail. 0 market influence.

4)"Risk premium"? I think you are confusing futures basis with "risk premium". Take a look at spot prices across crypto exchanges, the ones with a higher price out of line are the counterparties with issues. What @misterkel is talking about here is the futures basis.

I would suggest you do a lot more reading and research in this space before you try to state opinions as facts. There are a surprising amount of people on ET whose knowledge base crushes any traditional funds analyses.

1. It's important to split the risk and function of the deregulated exchanges. If Kraken and Bitstamp get hacked and you have funds there that are lost, it's a big financial impact to you. If you trade CME futures that use Kraken as one of a basket of places they use only to set the index value and Kraken gets hacked, it has next to no impact or absolutely no financial impact to you. The potential maximum financial impact to you in the first case is huge, the potential maximum financial impact to you in the second case is tiny. So I would disagree with the line of thinking that says because CME uses unregulated exchanges to get reference prices, they're somehow even in the same risk universe as using unregulated exchanges.
2. Sorry, only 21 crypto exchanges hacked, and one crypto itself "hacked" (yes, I understand it was a 51% attack and yes, I could go into a long discussion about exactly what that is, I'm not as ignorant on blockchain as you've assume). Versus zero regulated exchanges. How does that change my point exactly?
3. I never even intimated that CME BTC futures prices influence markets and if it does or not has absolutely nothing to do with my point. I'm really confused why you're bringing this up in response to my post pointing out that unregulated crypto exchanges carry a risk premium because they're demonstrably risky compared to CME?
4. Futures diverge from spot for a number of reasons depending on commodity. My assertion is that they diverge from spot in BTC because there is a very real risk that the platform you have to use in order to take advantage of that arbitrage opportunity is not itself risk free, it is in fact demonstrably very risky. And therefore the divergence in futures prices from spot is not a risk free or even low risk arbitrage opportunity, it is in fact a reflection of the risk that you take on in order to take advantage of that opportunity. I'm certainly open for discussion on what level of risk there is in a given unregulated exchange and if the current premium reflects that risk. Happy to learn from anyone who's willing to discuss that. But I'd advocate that claiming there is no risk, and furthermore claiming that anyone who claims there is risk is doing so from a position of ignorance, isn't terribly helpful in advancing the discussion. Refusing to acknowledge even the possibility of any minuses is more a sign of being caught up in a bit of a cult in my experience.