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Cryptocurrency

Bitcoin price crashes to $50k, dashing carry traders’ hopes

Horizonstocks

The recent price crash of Bitcoin (BTC) has had a significant impact on the cryptocurrency market, particularly in regards to the relationship between futures and spot prices. As we will explore below, the decline in premium has dented the appeal of cash and carry arbitrage strategies.

Bitcoin’s Price Crash: A Brief Overview

In recent hours, Bitcoin’s price has plummeted by over 18% to $50,000, reaching its lowest level since February 2024. This sell-off is part of a broader trend of risk aversion in global markets, driven by the sharp rise in the anti-risk Japanese yen and the U.S. bond market shenanigans.

Futures Premium Dents Appeal of Cash and Carry Arbitrage

The annualized three-month futures premium on leading crypto exchange Binance has dropped to 3.32%, the lowest since April 2023, according to Velo Data. Similarly, other major exchanges such as OKX and Deribit are seeing a similar slide in futures premiums.

| Exchange | Futures Premium (Annualized 3-Month) |
| — | — |
| Binance | 3.32% (lowest since April 2023) |
| OKX | 2.91% (sliding rapidly) |
| Deribit | 3.15% (lower than in January 2024) |

As we can see from the table above, the premiums have crashed along with the spot price, making it less attractive for investors to engage in cash and carry arbitrage strategies.

Impact on Cash and Carry Arbitrage

The classic cash and carry strategy involves taking a long position in the spot market or U.S.-listed ETFs while simultaneously selling futures. However, with the decline in premium, this strategy is now less viable than it was in the first quarter when futures traded at a premium of over 20%.

Institutional Investors: A Shift in Strategy?

The shift in futures premiums has also had an impact on institutional investors who had been using the cash and carry strategy to profit from discrepancies between futures and spot prices. As the premium has decreased, these investors may need to reassess their strategies.

  • Why are futures premiums declining? The decline in premiums can be attributed to several factors, including the recent price crash of Bitcoin, changes in market sentiment, and shifts in investor behavior.
  • What does this mean for cash and carry arbitrage? The decline in premium has dented the appeal of cash and carry arbitrage strategies, making it less attractive for investors to engage in these activities.
  • How will institutional investors adapt? As premiums continue to decrease, institutional investors may need to reassess their strategies and explore alternative methods of profiting from discrepancies between futures and spot prices.

The Future of Cash and Carry Arbitrage

As the cryptocurrency market continues to evolve, it is essential for investors to stay informed about changes in futures premiums and their impact on cash and carry arbitrage. With a decline in premium, it may be necessary for investors to reassess their strategies and explore alternative methods of profiting from discrepancies between futures and spot prices.

Conclusion

In conclusion, the recent price crash of Bitcoin has had a significant impact on the relationship between futures and spot prices. The decline in premium has dented the appeal of cash and carry arbitrage strategies, making it less attractive for investors to engage in these activities. As premiums continue to decrease, institutional investors may need to reassess their strategies and explore alternative methods of profiting from discrepancies between futures and spot prices.

References

  • Velo Data: "Futures Premiums on Binance, OKX, and Deribit"
  • Bloomberg: "Bitcoin Falls Below $50,000 as Risk Aversion Spreads"