In what is to be good news for U.S investors, many Bitcoin ETFs are all set to launch in the next couple of weeks. Such launches have a good chance of bringing back investors’ interest in the famous ‘cash and carry’ arbitrage strategy. Consequently, a revived interest will put additional pressure on the cash market.
The exchange-traded funds will purchase bitcoin futures contracts mainly from front-month trading. It will happen in a mandated venue. Chicago Mercantile Exchange (CME) is the most probable venue for it. The ETFs would try to replicate crypto’s performance without buying actual coins.
If Wall Street adopts these ETFs, it will have widespread ramifications. First of all, the futures premium will go up significantly. That would boost yields from the arbitrage strategy, involving acquiring the asset in the cash market and selling the futures contract at the same time.
Once the Bitcoin futures ETF launches, more people will be interested in buying them. That would, in turn, take the futures curve to contango. Contango refers to any situation where the futures price is greater than the sort price for a commodity. It would be a strong impetus for carrying traders. Once they initiate a trade with the buying of Bitcoin in spot markets, it would create a spike in spot prices.
Cash and carry arbitrage was popular among financial institutions at the beginning of 2021. Futures premiums went up 20% or more. With the United States SEC’s approval for Bitcoin-based ETFs, more and more people will now enter the crypto space.
