Wall Street 'Withdraws' from Bitcoin Basis Arbitrage: CME Falls Out of Favor, the Golden Age of Arbitrage Comes to an End
Wall Street is retreating from the once-lucrative Bitcoin basis trade, as narrowing spreads between spot and futures prices have made the strategy barely profitable. The cash-and-carry trade, which involved buying Bitcoin spot (often via ETFs) and selling futures to capture the premium, has seen annualized returns drop to around 5%, down from nearly 17% a year ago, barely covering funding and execution costs.
This compression has led to a significant shift in market structure: CME's Bitcoin futures open interest has fallen below Binance's for the first time since 2023, indicating a withdrawal of hedge funds and large US accounts from this specific arbitrage strategy. While CME was the preferred venue for this institutional trade, Binance's dominance in perpetual futures has remained steady.
The approval of spot Bitcoin ETFs initially fueled the trade's popularity but also accelerated its decline by attracting capital that quickly eroded the arbitrage opportunity. The market is now maturing, with participants shifting from simple leveraged directional bets to using options, hedges, and expressing views through diverse instruments like ETFs. This increased efficiency has naturally narrowed price disparities between venues.
As the era of easy, high returns from basis trading ends, participants are expected to seek more complex strategies in decentralized markets and other crypto assets.
marsbit01/22 11:34
