Hmm I disagree on the conclusion. The only reason this kind of arbitrage exist for retail traders is exactly that hedge funds and banks have been naysayers for years about everything crypto.
Sam Bankman-Fried (FTX founder and 2nd largest donor to the Biden campaign) has a personal net worth of 10BN$ just because he and his fund had a huge size of the crypto arbitrage cake to eat. He is 29.
For instance, he has been arbitraging for a whole year the difference between Bitcoin price in Japan VS Bitcoin price in the US. He made 20M$ with a risk-free arbitrage trade, every day, for one year. A decent one year punt
Now that Coinbase is worth more than Goldman Sachs, Binance probably even more and FTX following soon, banks and traditional hedge funds canât ignore digital assets anymore. No surprise that Goldman and Fidelity are attempting once again to launch a Bitcoin ETF.
Traditional hedge funds returns have been ridiculed by crypto hedge funds returns in recent years - and Iâm including crypto quant funds with delta-neutral arb strategies that only need market volatility to generate yield.
Slightly OT but I get carried away and excited by seeing a silent revolution happening in front of my eyes.
Edit: US banks FOMO might have finally produced something to save their balance sheets, todayâs news
From the link you shared, if the insurance maxes out I guess one of the other 2 kick in
« 1. Insurance Fund: A fund that is maintained by the exchange to ensure that profitable traders receive their profits in full and cover for any excess losses incurred by a bankrupt trader.
2. Socialized Loss System: With this method, losses of bankrupt positions are distributed among all profitable traders.
3. Auto-deleverage liquidations (ADLs): In ADLs, the exchange selects opposing traders in order of leverage and profitability, from which positions are automatically liquidated to cover for the losing traderâs position. »
I wanted to post this nice tracker for Binance users (not by me). Hereâs how I understood this trade intuitively (hoping that itâs useful to others too):
If you have a long position in an asset, you short the future to give up the potential upside until the expiration date in exchange for a (quite generous) interest rate.
The difference between the perpetual and the delivery futures is similar to a floating-vs-fixed rate mortgage. With the delivery future, youâve locked in the interest rate until the delivery date, with the perpetual the interest rate is floating depending on the long-short interest on the asset.
What I found really interesting in this article (a bit long-wided but worth it) is that cash&carry traders hold âsynthetic USDâ positions (ie give up their upside) so that other investors can hold more long positions for a given amount of fiat collateral in the system.
For example, I had some DOGE laying around (donât judgeâŠ) and shorted the perpetual. The price of the future has gone down quite a bit in the past few days because DOGE has gone up in USD. My portfolio is still worth the same overall in USD terms (and will continue to be) but Iâm pocketing an âinterest paymentâ every few hours. Of course, in this case Iâd have been way better off just holding the DOGE without the short position on.
I recommend trying this with play money. I thought I understood contango and all that stuff but I actually didnât. Now I know I donât
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