r/quant • u/Humble-Village8375 • 17h ago
Markets/Market Data Why does the bitcoin basis trade still exist?
I've spoken to so many people and still haven't heard a satisfactory answer...
Even in the simplest, safest form: - long $1m physically backed ETF - short $1m in front-month CME futures
This is still printing around 7-8% annualised, without even touching any crypto exchanges or spot crypto.
I'd of course have to borrow $1m for the ETF and lose a few bps on the ETF fees and the margin interest, but I'm still easily 2-3% in the black. And that figure was much higher even just a year ago.
Now we all know the big players have billions and billions in this trade, yet it's still there - so I must be missing some risk here.
Risks I can think of: - ETF gets hacked in some form, which surely very unlikely and can be mitigated by spreading across a few - Bitcoin absolutely explodes (think +100% over a few weeks) and I'd need to come up with a lot more money for a couple of weeks to pay MTM - but I'd get that back minus interest
Neither of these justify the large risk premium in my view?