Traders seek to profit from ‘cash and carry’ cryptocurrency bet after ETF launch – News Couple
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Traders seek to profit from ‘cash and carry’ cryptocurrency bet after ETF launch


The launch of the first Bitcoin ETF on Wall Street created an opportunity for professional investors to make huge profits from a simple bet, thanks to the lack of major players in the young cryptocurrency market.

Bitcoin price soared to a new record this week as $1.2 billion of new cash was injected into the ProShares Bitcoin Strategy ETF in just three days, indicating voracious demand for a new investment fund holding futures contracts that tracks the price of the cryptocurrency.

But those inflows and the new benchmark price of bitcoin have also caught the eyes of seasoned traders looking to exploit the gap between the price of the coins themselves and their price in the futures markets.

ProShares ETF linked to CME futures: As new funds flow into the bitcoin ETF, the fund has to buy futures contracts to be exposed to the bitcoin price. Futures contracts expire each month, which means that the fund must regularly “list” its holdings into the following month’s contract.

The recent surge in demand has pushed up the price of bitcoin futures in the near term, and made it out of sync with the underlying cash market – creating a gap between the two prices at which trading can turn a profit.

“[The ETF] It rotates the first month contract, so as the flows enter the ETF, the contract is pushed up, expanding the range [difference between futures and cash prices]said Michael Busilla, partner at BlockTower hedge fund in New York.

Stéphane Ouellette, CEO and co-founder of Canadian hedge fund and broker FRNT, said the “simple cash and mobile trading” of buying bitcoin and selling futures traded on the CME provides an annual return of about 30 percent.

In traditional markets, high-frequency traders move quickly to close these price gaps in order to profit, and the opportunity vanishes. But the lack of big players in the cryptocurrency industry means that there are few who are willing to deploy the additional capital required to erase the spreads.

Trading on the Chicago Mercantile Exchange is more expensive than other places because the exchange has higher margin requirements.

“As with many of the most successful trades in cryptocurrency, there are not players that are sophisticated enough to manage and monitor the spreads,” said Ouellette, referring to trading strategies focused on arbitrage that take advantage of spreads across markets.

The opportunity to win from this bet is amplified by the fact that Bitcoin is traded in a wide variety of places around the world – which means that there are multiple prices available for traders to buy the coins in the cash markets.

Knowing that ProShares will roll out their contracts means that traders believe they can count on a regular buyer in the futures markets to push the price higher.



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