James Check, the lead analyst for Glassnode, has provided an in-depth explanation of the Bitcoin cash and carry trade, addressing widespread confusion about how it impacts market structure. On June 11, Check shared his insights on the social media platform X (formerly known as Twitter), explaining the mechanics behind this trading strategy and its implications for Bitcoin markets.

Check begins by clarifying the cash and carry trade, a delta-neutral strategy used in both calendar expiring futures and perpetual swap funding rates. According to Check, the current funding rates are positive, annualized at +10%, indicating that traders are willing to pay an interest rate to hold long positions via leverage. Check notes that this scenario is mirrored in calendar futures on the CME, which trade at a premium to the spot price, creating an arbitrage opportunity.

In this arbitrage setup, a trader can take a long position in the spot market (or ETFs) and simultaneously short the futures market, Check explains. For perpetual swaps, the yield is dynamic and volatile, whereas for calendar futures, it is fixed and expires at a specific date. Check states that traders then roll their positions into the next contract upon expiration. This strategy ensures that the position remains neutral with respect to price risk since it involves being long in the spot market and short in the futures market. Thus, traders are not exposed to liquidation risks unless they mishandle their collateral or strategy.

Check emphasizes that such positions contribute to both the buy side of the spot market and ETFs and the sell side of the futures market. According to Check, this activity adds depth, volume, and liquidity to Bitcoin markets without significantly impacting market prices. This phenomenon is not unique to Bitcoin; Check asserts it is a fundamental aspect of any asset with a futures market and will persist as long as the market reaches a significant size.

Addressing common misconceptions, Check explains that the spot price is not being suppressed by these short positions. Instead, Check highlights that the existence of the trade reflects a net bullish sentiment where long positions are pushing futures prices higher. The real missing element, Check suggests, is a substantial impulse of non-arbitrage demand that could overwhelm the sell-side pressure from HODLers and existing holders.

To further illustrate his points, Check included a chart in his post that shows Bitcoin’s perpetual futures funding rates over time, highlighting periods of positive and negative funding rates and their relationship with Bitcoin’s price. This visual representation, as highlighted by Check, underscores the dynamic nature of the funding rates and their influence on market liquidity and structure.

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