Who will lend me a few billion $ for this arbitrage?

[ScroogeMcDuck]

Step 1: Buy a bunch of spot bitcoin and get 6-10% APY on it as a demand deposit at a regulated exchange
Step 2 (optional): Short an equal amount of CME bitcoin futures and get paid 15% APY in contango.
That's a 25% return on a delta neutral positon, just for taking some counterparty risk with the exchange and some liquidation risk. If bitcoin spikes up enough to squeeze you on the short futures position, then you cover some of the futures and sell some of the bitcoin at the same time, and wire the proceeds from the bitcoin exchange to the broker, which takes an hour or less during business hours. But I guess if too many people do that then the spread blows up whenever bitcoin spikes so it's no longer a safe arbitrage unless you have deep pockets to cover the collateral on the futures.

 

[destriero]

lol it's shit. No crossing on haircut. We don't need you. And it's abt 10% net. I can beat 10% PA at a 4-5 Sharpe in my sleep.

 

[Wise Old Man]

Can you explain the 15% contango arbitrage a little more? If I'm understanding right, you would be shorting the front month futures. When its time to roll you're buying them back and selling the next month. Assuming you get filled close to the bid and the ask, you're paying for the roll. Sure there's a little hidden liquidity but with 18k volume on the front month and only 2700 volume on the back month, I bet the bid ask spreads are programmed to drive that 15% arbitrage down to 0.

 

[ScroogeMcDuck]

So sit on the asks of all the months and buy spot at the ask whenever you get a fill. The spot bid/ask spread is almost zero.

 

[ScroogeMcDuck]

Here's a better plan: make the long twice the size of the short, so when bitcoin goes up you just sell some to rebalance and you don't have to touch the futures.

 

[Overnight]

Can you explain the 15% contango arbitrage a little more? If I'm understanding right, you would be shorting the front month futures. When its time to roll you're buying them back and selling the next month. Assuming you get filled close to the bid and the ask, you're paying for the roll. Sure there's a little hidden liquidity but with 18k volume on the front month and only 2700 volume on the back month, I bet the bid ask spreads are programmed to drive that 15% arbitrage down to 0.


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Pay very close attention to the net change column, and remember what you are doing...

You are shorting the front month futures, right? When it is time to roll, you have lost all that money by buying to cover since it is up in price at expiry. So now you short the next month, and it continues to go up. On next roll, you buy back to cover at another loss. And as long as the futures keep going up, you will keep losing money, hand-over-fist, because unless you have a severe seasonal commodity, the prices through all the near months to the spot will move in unison.

 

[ScroogeMcDuck]

Pay very close attention to the net change column, and remember what you are doing...

You are shorting the front month futures, right? When it is time to roll, you have lost all that money by buying to cover since it is up in price at expiry. So now you short the next month, and it continues to go up. On next roll, you buy back to cover at another loss. And as long as the futures keep going up, you will keep losing money, hand-over-fist, because unless you have a severe seasonal commodity, the prices through all the near months to the spot will move in unison.

The futures are cash settled so you don't have to cover them at expiration. Also you don't really need to ever cross the spread except in an emergency. I'd just run an MM bot in both markets that has a bias towards being long a larger amount of spot than it's short the futures. Spread your futures shorts over all the months so they don't expire at the same time.

 

[MrMuppet]

I've already told you a million times that this is not a trade for you.
Either go to the crypto native exchanges and trade carry there or forget about it.

There is a reason this premium exists and it's structural. You as a private investor do not have the infrastructure to trade this with meaningful size because you cannot manage margin. CME is closed over the weekend so what do you do when BTC jumps 20% and basis doubles while your margin is already thin? You get margin called as soon as GLOBEX opens without any chance to wire additional funds to your broker.

There are a million carry traders out there and they all have the same issues. Nobody will give you a single cent for it...also for the last time: There is substantial risk. This is not an arb.

 

[tsznecki]

Step 1: Buy a bunch of spot bitcoin and get 6-10% APY on it as a demand deposit at a regulated exchange
Step 2 (optional): Short an equal amount of CME bitcoin futures and get paid 15% APY in contango.

I've told you this before along with @destriero and @MrMuppet but you don't seem to learn. There's a reason the carry exists.

Also, I want to add this point, I can get 10-15% yields in Defi and Cefi on cash. Why would I need to put on a carry trade?

 

[tsznecki]

Pay very close attention to the net change column, and remember what you are doing...

You are shorting the front month futures, right? When it is time to roll, you have lost all that money by buying to cover since it is up in price at expiry. So now you short the next month, and it continues to go up. On next roll, you buy back to cover at another loss. And as long as the futures keep going up, you will keep losing money, hand-over-fist, because unless you have a severe seasonal commodity, the prices through all the near months to the spot will move in unison.

You really need to learn to read gramps or stop talking about shit you know nothing about. OP is talking about being long spot and short the future. Not long/short only futures.