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Profitability of Bitcoin Futures Cash-and-Carry Trades Plummets Amid Declining BTC Prices



Amid the ongoing sell-off that has gripped the cryptocurrency markets, bitcoin (btc) trading strategies, particularly the futures cash-and-carry trade, are witnessing a significant downturn in profitability. This has led to a cautious outlook among traders who rely on this once lucrative arbitrage opportunity.

The cash-and-carry trade, a staple in the derivatives market, involves purchasing an asset in the spot market while concurrently selling a futures contract for the same asset. This strategy capitalizes on the price differences between the spot and futures markets, allowing traders to lock in risk-free returns if executed correctly.

Recently, this trading strategy saw a notable decline in its potential returns. Just a few weeks ago, traders could secure an almost risk-free annualized return of around 10% through these trades. This implied a 10% difference, on an annualized basis, between the futures and spot prices of Bitcoin. However, after accounting for the capital required to hold Bitcoin and the margins needed for the futures contracts, the effective returns dwindled to approximately 5%.

The situation has since deteriorated, with the annualized premium dropping to 6%, which translates to a mere 3% return after accounting for margin costs in the spot markets. Such a decline in profitability raises concerns about the viability of cash-and-carry trades in the current market environment.

Crypto analyst Checkmate highlighted the diminishing returns from Bitcoin futures trades, suggesting that the “juice left to squeeze” from such strategies is nearing its end. This development could potentially drive traders to explore alternative investment options, as the diminishing returns no longer justify the risks associated with cash-and-carry trades.

The broader market sentiment around Bitcoin is also under scrutiny. With Bitcoin’s price correcting over 13% from its June highs, some analysts speculate a further drop to $59,000 might be on the horizon. Checkmate, a noted Bitcoin analyst, pointed out that the sell-side risk ratio for Bitcoin indicates a potential shift in the market, signaling that all significant profits and losses have been realized for now.

The market dynamics suggest that Bitcoin might be entering a new phase of price discovery, potentially setting a new range that could evoke strong emotional responses from investors, including fear, greed, panic, and euphoria. These emotions are likely to influence the next wave of market movements. Technical analysis further supports this outlook, with Bitcoin’s price chart forming a falling wedge pattern in the lower time frame, hinting at a possible decline to the $59,000 level.

As the cryptocurrency landscape continues to evolve, the decrease in profitability of Bitcoin futures cash-and-carry trades serves as a cautionary tale for traders. It underscores the importance of staying adaptable and vigilant in an ever-changing market. As traders search for new opportunities, the fundamental dynamics of supply and demand, market sentiment, and technical indicators will play a crucial role in shaping the future trajectory of Bitcoin and the broader cryptocurrency market.

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