The recent Bitcoin crash to $50,000 has caught many carry traders off guard. These traders make money by taking advantage of price differences between futures and spot markets, but the sudden drop in Bitcoin’s value has made this strategy much less effective.
Bitcoin (BTC), the world’s top cryptocurrency, plummeted over 18% in just 24 hours, hitting its lowest level since February 2024. This sharp decline is part of a larger trend of risk aversion in global markets, driven by the rising value of the Japanese yen and issues in the U.S. bond market.
Velo Data shows that the three-month futures premium on Binance, a leading crypto exchange, has fallen to 3.32%, the lowest since April 2023. Similar drops are seen on other major exchanges like OKX and Deribit. Meanwhile, futures on the Chicago Mercantile Exchange, popular with institutional investors, are now trading almost the same as spot prices.
This narrowing gap means the returns from the cash and carry strategy—buying Bitcoin in the spot market and selling futures—are now less appealing. These returns are now similar to, or even lower than, those from the 10-year U.S. Treasury note.
Earlier this year, the carry trading strategy was very popular, especially when futures premiums were over 20%. This approach attracted many institutional investors and contributed significantly to inflows into spot ETFs. However, the recent Bitcoin crash has made this strategy less attractive, showing just how unpredictable the cryptocurrency market can be.
The Bitcoin crash not only affects carry traders but also reflects broader market sentiments. The significant drop in Bitcoin’s value indicates that investors are becoming more cautious. This trend is seen across various markets, with rising concerns about economic stability and the impact of global financial policies.
For investors who relied on high futures premiums to make substantial profits, the returns are now diminishing. The carry trade, once a reliable way to profit from market discrepancies, is now much less dependable due to the Bitcoin crash. The future of this strategy depends on the stability of the cryptocurrency market and the broader economic environment.
In summary, the Bitcoin crash to $50,000 has disrupted the strategies of carry traders, making it harder for them to profit. This event highlights the unpredictable nature of the cryptocurrency market and its sensitivity to global economic factors. As Bitcoin continues to fluctuate, traders and investors must adapt to the changing landscape to navigate the challenges and opportunities it presents.
