Bloomberg: Wall Street institutions are withdrawing from bitcoin "cash-and-carry" arbitrage trades

PANews, January 21 — According to Bloomberg, a key arbitrage trade in the cryptocurrency derivatives market is unraveling. Wall Street institutions previously employed the “cash-and-carry trade” strategy—buying spot bitcoin and selling futures to capture the price spread—but the influx of large amounts of capital has caused the spread to narrow sharply. The annualized yield has dropped from about 17% a year ago to the current 4.7%, barely enough to cover funding costs.

As arbitrage profits shrink, the value of open interest in bitcoin futures on the Chicago Mercantile Exchange has fallen significantly from its peak and has been surpassed by another exchange. This mainly reflects the strategic withdrawal of large U.S. accounts such as hedge funds. As the market matures, institutions have more tools to express directional views, which has narrowed the price differences between exchanges and naturally squeezed arbitrage opportunities. Market participants point out that the era of near risk-free high returns may be over, and traders are turning to more complex strategies in decentralized markets. CME Group stated that institutional investors are diversifying from bitcoin to other tokens such as ethereum.