A hedged Bitcoin trading strategy known as cash-and-carry pairs a spot purchase with a futures sale, seeking to profit as the price premium between the two markets converges. The strategy's viability depends critically on borrowing costs and execution expenses.
On November 10, CME Bitcoin futures for November settlement closed at $73,805 per BTC, while Coinbase's spot price stood at $73,685.73, creating a $119.27 premium—about 0.16% of the spot price. Over a 17-day period to contract expiry on November 27, this spread translates to roughly 3.48% annualized gross carry.
However, financing costs present a significant obstacle. The New York Fed's SOFR rate stood at 3.88% as of November 9. Financing the full $73,685.73 spot purchase for 17 days at this rate would cost approximately $135, exceeding the available premium by about $15.74 before accounting for trading and other expenses.
Capital and Risk Considerations
Beyond borrowing costs, the strategy requires managing additional capital demands. CME futures are marked to market daily, meaning a short futures position can trigger margin calls if Bitcoin's price rises, even as the long spot position gains value. Traders must maintain sufficient liquidity to support both legs of the hedge.
Calculating returns on cash-and-carry also involves nuanced considerations. For investors using their own capital, the analysis becomes an opportunity-cost calculation rather than a direct financing bill. Using Bitcoin ETFs adds further complexity through sponsor fees and potential premiums or discounts to net asset value.
Market Context
The October consumer price index, published November 10, showed monthly increases of 0.4% overall and 0.3% for core prices. Federal Reserve Governor Christopher Waller had stated that a core reading at or above 0.3% could warrant considering a 50-basis-point December rate increase, though the November futures contract expires before the Fed's December 8–9 meeting.
US spot Bitcoin ETFs recorded $95 million in net outflows on November 10, following $201 million in outflows the prior day, according to Farside data. These figures reflect continued aggregate redemptions but do not directly indicate investors' use of hedged strategies.
For the cash-and-carry approach to attract significant new buying interest, futures premiums would need to leave meaningful room for profit after accounting for actual funding costs, execution expenses, and the capital required to maintain both positions.
