Long BTC short CME BTC futures trade, what are the risks?

Daal said:
Nah, I just wouldn't risk without holding the bitcoin myself and using an exchange with a real history. I dont trust these exchanges, I dont care who backs them, unless its a soverign state. I have seen just too many exchanges dissapear overnight and clients be left holding the bag to pick up nickels in front of a steamroller. The CME is too big to fail and the US Treasury knows it, so they would back any clearing issues. I also know a thing or two about safely storing the coins myself
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Then I really would not do it. Your risk is not the exchange then, but the unpredictability of IBKR and their shit margin rules and customer service.

I can tell you a couple of stories about IB...in 2008 their data feed freaked out which resulted in a couple of long positions being marked to market at a price of zero. Entire 6 figure portfolio was 6 figures in the red and it took a week until I got to someone who was qualified enough to figure out what has happened.
Not the worst week of my life, but at least top 5. IBKR, never again.

If you use real crypto exchanges, you can post only 10% - 20% of your carry trade as margin. In case they blow up, you lose very little. You will have to manage your margin level correctly, tho.

A basis trade in BTC is never a fire and forget thing, you have to check at least once a day.
But let's be honest: This position probably outperforms the return of 99% of all ET users
 
Daal said:
Nah, I just wouldn't risk without holding the bitcoin myself and using an exchange with a real history. I dont trust these exchanges, I dont care who backs them, unless its a soverign state. I have seen just too many exchanges dissapear overnight and clients be left holding the bag to pick up nickels in front of a steamroller. The CME is too big to fail and the US Treasury knows it, so they would back any clearing issues. I also know a thing or two about safely storing the coins myself
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Sure. To each his own. I've lost money on Mickey Mouse exchanges, and I've traded on a lot of different ones, so I feel comfortable with ftx and Binance.
 
I cosign everything @MrMuppet says. My returns on basis were stupid in 2017. Imagine a +10% basis inverting to -10% in 1 hour. Annualize that. Do it a few times.

There is still stupid alpha in crypto. But majority of ET would rather tick fuck ES for a tick or use squiggly lines to day trade.
 
tsznecki said:
I cosign everything @MrMuppet says. My returns on basis were stupid in 2017. Imagine a +10% basis inverting to -10% in 1 hour. Annualize that. Do it a few times.
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What did you do when the basis inverted? You closed the futures short and rode the BTC with no hedge? Or did you converted the BTC to fiat as well?
 
Here is a question for those that use those smaller exchanges. Interactive Brokers is a public company with a lot of capital in excess of regulatory requiments (about $6.5B in excess capital) yet, they are still rated BBB+ by the S&P. These smaller crypto sites, I'd bet all of them would be rated junk, some more junkie than others but all of them junk.

If these companies had to raise funds they would likely pay anywhere between 4-9%(I'm being conservative here). Dont you feel that by doing the trade with them you are pretty much giving up half or nearly all of the expected profit due the company specific risks? Corporate fraud, mistakes, rogue traders, hacking etc are all a reality. If you still consider the trade super low risk, why not just buy junk bonds? Why not borrow cash and buy triple C rated bonds?
 
Daal said:
Here is a question for those that use those smaller exchanges. Interactive Brokers is a public company with a lot of capital in excess of regulatory requiments (about $6.5B in excess capital) yet, they are still rated BBB+ by the S&P. These smaller crypto sites, I'd bet all of them would be rated junk, some more junkie than others but all of them junk.

If these companies had to raise funds they would likely pay anywhere between 4-9%(I'm being conservative here). Dont you feel that by doing the trade with them you are pretty much giving up half or nearly all of the expected profit due the company specific risks? Corporate fraud, mistakes, rogue traders, hacking etc are all a reality. If you still consider the trade super low risk, why not just buy junk bonds? Why not borrow cash and buy triple C rated bonds?
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I have only used those exchanges to shop and then moved everything to paper cold storage.
But if you want to play the arbitrage...
Would you feel comfortable shorting BTC futures without hedge on IB while holding bitcoin anywhere else?
I mean, this thing is wild...
 
cesfx said:
I have only used those exchanges to shop and then moved everything to paper cold storage.
But if you want to play the arbitrage...
Would you feel comfortable shorting BTC futures without hedge on IB while holding bitcoin anywhere else?
I mean, this thing is wild...
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I'm not sure I would, not at IB. But maybe there is a low-risk way to do this with TradeStation, which I'm in the process of opening an account with
 
Daal said:
Here is a question for those that use those smaller exchanges. Interactive Brokers is a public company with a lot of capital in excess of regulatory requiments (about $6.5B in excess capital) yet, they are still rated BBB+ by the S&P. These smaller crypto sites, I'd bet all of them would be rated junk, some more junkie than others but all of them junk.

If these companies had to raise funds they would likely pay anywhere between 4-9%(I'm being conservative here). Dont you feel that by doing the trade with them you are pretty much giving up half or nearly all of the expected profit due the company specific risks? Corporate fraud, mistakes, rogue traders, hacking etc are all a reality. If you still consider the trade super low risk, why not just buy junk bonds? Why not borrow cash and buy triple C rated bonds?
More...

Here is the thing. The returns in crypto are not free lunch.
You have to know what you're doing 100%. This includes doing your due diligence without relying on the clowns of the rating agencies.

Refco (if you're old enough to remember that name) hat brilliant ratings, too, but went belly up. I don't care about ratings, I want to know how the company works.

On the other hand I'm more than happy to go even aka. only losing my profit in case an exchange goes belly up. The expected return is absolutely bonkers in this case.

In case you still have nightmares about hacking, corporate fraud, mistakes and rouge traders I advise you again to stay away from trades like this.
You clearly lack the necessary understanding and industry insights to pull it of. Wait for a couple of years until the financial industry has developed products that are considered safe for retailers.

Crypto is still the Wild West. Trade at your own risk.
 
GBTC premium is synthetically the very long end of the forward curve. You cannot really arb it but you can spread it vs futures
 
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