Can someone explain the Bitcoin carry trade and how it eventually blows up?
nostr:npub1s5yq6wadwrxde4lhfs56gn64hwzuhnfa6r9mj476r5s4hkunzgzqrs6q7z
Discussion
I’m thinking on the fly…
If they’re buying spot bitcoin today in order to sell it into a future’s contract, then the future price must be greater than today’s price. Because the arbitrage opportunity (future - spot) has to not only generate a profit but also account for their financing cost of holding the bitcoin during that period of time.
Also, wouldn’t one think that in such a trade there is MORE demand in today’s spot market which would drive today’s price UP while the future’s price would go down?
I guess when spot demand greater (negative carry) would be repriced in the futures market….first who the hell is locking In pennies…when you have BTC but🤔
Just not sure how the liquidation event plays out if the futures short isn’t short they’re delta neutral
If contango (future price > spot) buy spot sell future and lock the profit.
If backwardation (spot price > future) sell spot buy future to lock the profit.
I dont know shit so just guessing here...
It just depends on the size and leverage. The premium isn’t that high atm so to really cash in they need leverage. BuI with leverage comes risk. If btc moves up too fast they might get margined called on their short position. So if low leverage there not a lot of risk. But higher leverage there is. In theory they are delta neutral but who knows