Bloomberg: Bitcoin Futures-Spot Spread Narrows, Marking the End of Wall Street's Arbitrage Era

Odaily News A key arbitrage trade in the cryptocurrency derivatives market is unraveling. The "cash-and-carry trade" strategy, where Wall Street institutions previously bought spot Bitcoin and sold futures to capture the spread, has seen its annualized yield plummet from around 17% a year ago to roughly 4.7% currently due to massive capital inflows drastically narrowing the spread, making it barely sufficient to cover funding costs.

As arbitrage profits shrink, the open interest value of Bitcoin futures on the Chicago Mercantile Exchange (CME) has significantly declined from its peak and has been overtaken by Binance. This primarily reflects the strategic retreat of large U.S. accounts such as hedge funds. Market maturation has provided institutions with more tools to express directional views, leading to a narrowing of spreads between exchanges and naturally squeezing arbitrage opportunities. Market participants note that the era of near-risk-free high returns may be over, with traders shifting towards more complex strategies in decentralized markets. CME Group stated that institutional investors are diversifying from Bitcoin into other tokens like Ethereum. (Bloomberg)