A lot of traders are coming to Bitcoin in recent months hoping for 1000% returns to grace them as if the run is sure to continue. Having seen multiple bubble and bust cycles in my time trading Bitcoin since 2013 I've opted for a different approach. Starting last year I began employing a futures cash-and-carry strategy using the Bitmex Exchange. Usually and especially during bullish times the quarterly futures contracts open and remain at a premium to spot market price. Over the duration of the contract as it approaches expiration the premium decays. As a bonus when the spot price experiences volatile swings to the downside the premium can turn into a discount. What I do at the beginning of the cycle is sell the equivalent capital value in futures at the premium and hold onto them to expiration or to an inversion of premium to discount. This Quarter's arbitrage began at 11% so in theory I am able to lock in the "value" of Bitcoin at around $18,000/BTC and capture a 5.5% return. It's not sexy but it's consistent and filters through the volatility.
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The premium has now come within 1-2% of spot as the hype has died down. Right now the short futures are acting like a hedge for Bitcoin valued at $17,000. Looking at the June futures there is a chance for perhaps a 3-4% premium but that's hardly worth it.
@Penghunter, The time for this specific opportunity has unfortunately passed. You may still be able to find futures products on other exchanges that offer an arbitrage opportunity but I have no particular trusted exchange to recommend.
Thanks for your comment. I am going to look into this further.
norok
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@Penghunter, Here you are sir
CapitalGained
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@norok, Thanks so much for this, I have been searching far and wide to get a better understanding of this strategy.
From my understanding then, providing you wait until settlement, dont over-leverage or just use 1:1 and hedge the correct $ values, it is risk free?
I guess the other risk being the opportunity cost of being directionally neutral and the amount of capital you must trust with the exchange you do it on.
norok
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@Penghunter, that is correct.
There is "exchange risk" where you must trust that FTX will not get hacked or suddenly go dark with your funds. Then there is the risk of opportunity cost being directionally neutral. Everyone in the crypto space ignores this strategy because making 5% in a month is uninteresting to the vast majority of traders that are trying to get rich quick.
CapitalGained
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@norok, yeah that makes sense. I figure if I can cover my rent with cash and carry trades I'm in a much better position to take advantage of other opportunities. The other one I am looking at is shorting the perpetual while spot long to collect the funding.