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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

Wall Street 'Withdraws' from Bitcoin Basis Arbitrage: CME Falls Out of Favor, the Golden Age of Arbitrage Comes to an End

marsbit01/22 11:34

Polymarket's "Hand of God": Frequent Prediction Disputes, the Black Box of Adjudication Power Under the "Centralization" Dilemma

A semantic dispute over whether the U.S. "invaded" Venezuela led to a multimillion-dollar betting outcome on Polymarket, where the "No" option was controversially settled despite real-world actions that many perceived as invasion. This incident highlights a recurring structural flaw in decentralized prediction markets: the challenge of defining "truth" for complex real-world events. Similar semantic ambiguities have repeatedly occurred on Polymarket, such as a high-stakes bet on whether Ukraine’s President Zelensky wore a suit at a specific event. While real-world evidence seemed clear, the outcome was swayed by decentralized oracle UMA’s governance mechanism, allowing token holders to vote on disputed results—sometimes enabling large players to manipulate outcomes. These cases reveal the limits of "code is law" in prediction markets. While blockchain excels at executing predefined rules trustlessly, it struggles with contextual, socially constructed events like political or military interpretations. The authority to define and settle reality ultimately remains centralized in the hands of rule-makers and arbitrators, even when execution is decentralized. Prediction markets work best for clearly defined, data-driven questions but face inherent challenges when applied to politicized or semantically ambiguous events. The core issue isn’t whether the market is decentralized, but who holds the power to define reality when consensus breaks down.

marsbit01/22 11:04

Polymarket's "Hand of God": Frequent Prediction Disputes, the Black Box of Adjudication Power Under the "Centralization" Dilemma

marsbit01/22 11:04

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