The background of this Bitcoin ‘risk-free’ trading strategy is the upcoming launch of the first Bitcoin futures ETF. Market expects it will push up the price of Bitcoin futures. The spread between Bitcoin futures and its spot price offers a wide annualized return in five months. Basically, the strategy, “basis trade” is buying Bitcoin (BTC) in the spot market and selling long-dated Bitcoin futures at the same time.
As a common trading strategy, the pair trade is to lock in the discrepancy between the futures and spot prices. Additionally, this hedges against the risk of a fall in Bitcoin’s prices in the spot market.
This comes when the US Securities and Exchange Commission (SEC) is set to approve the first Bitcoin futures ETF. The ETF will allow individual investors to trade directly on the exchange – like listed company stocks. The significant event for Bitcoin’s mainstream adoption is boosting the market sentiment.
‘Risk-Free’ Bitcoin Trade to Earn 10% Profit?
The basis trade works better in Bitcoin as compared to other assets, according to market analyses. This is due to the massive retail investor base getting used to futures trading.
Additionally, Su Zhu, Three Arrows Capital (3AC)’s co-founder, shares his perspective to Bloomberg on the ‘risk-free’ Bitcoin trade. “If you can get 6%, 10% on dollars there’s a lot of guys that will want to do that.” However, more traders could look to take advantage of the spread, meaning that it could shrink, Su Zhu noted.
According to Bloomberg, hedge funds have been using the basis trade in recent years to earn reliable gains.
However, Bloomberg quoted market participants as saying that hedge fund managers will “play that spread”. “They’ll buy the underlying asset at a less expensive price and then bid up the futures, and they’ll sell off into the strength of the market.”
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