Wall Street Steps Away From a Profitable Bitcoin Strategy

Shifting Dynamics in Crypto Derivatives: The Decline of the Cash-and-Carry Trade

The cryptocurrency derivatives landscape is undergoing a subtle yet significant transformation, as a once-dependable arbitrage strategy is losing its edge.

Institutions have long relied on the cash-and-carry approach—purchasing spot Bitcoin while simultaneously selling futures contracts to profit from price discrepancies. However, this method is rapidly losing effectiveness, signaling a broader change in how crypto markets operate. For the first time since 2023, open interest in Bitcoin futures on the Chicago Mercantile Exchange (CME) has dipped below that of Binance, highlighting how shrinking spreads and improved market efficiency are eroding this previously lucrative trade.

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Following the introduction of spot Bitcoin ETFs in early 2024, CME became the preferred platform for Wall Street traders executing these basis trades. The process was straightforward: acquire spot Bitcoin through ETFs, sell futures, and pocket the difference. In the months after ETF approval, this delta-neutral strategy often delivered double-digit annualized returns, attracting billions from investors focused solely on yield rather than price movement. Yet, the very popularity of these ETFs led to the strategy’s downfall—an influx of participants compressed the arbitrage spread, reducing profits to barely cover costs.

Currently, one-month annualized yields hover near 5%, marking some of the lowest levels in recent years, according to Amberdata. Greg Magadini, Amberdata’s director of derivatives, notes that the basis was around 17% a year ago but has now dropped to approximately 4.7%, just above the threshold for covering funding and execution expenses. With one-year Treasury yields at about 3.5%, the allure of this trade is quickly fading.

Open interest in CME Bitcoin futures has fallen below $10 billion from a peak above $21 billion, while Binance’s open interest remains steady at roughly $11 billion, based on Coinglass data. James Harris, CEO of digital asset management firm Tesseract, attributes this shift to a pullback by hedge funds and large U.S. investors, rather than a complete exit from crypto since the October price peak.

Platforms like Binance dominate the market for perpetual futures—contracts that are settled and recalculated multiple times daily, resulting in the highest trading volumes in crypto. Last year, CME introduced smaller, longer-term futures contracts for both cryptoassets and equity indices, enabling investors to maintain positions for up to five years without rolling them over.

Institutional Shifts and Market Evolution

James Harris explains that CME has traditionally been the go-to venue for institutions and cash-and-carry arbitrage. The recent convergence with Binance signals a notable change in market participation, which he describes as a “tactical reset” prompted by lower yields and reduced liquidity, not a loss of confidence.

According to CME Group, 2025 marked a turning point as increasing regulatory clarity encouraged institutions to diversify beyond Bitcoin into assets like Ether, XRP, and Solana. “We averaged around $1 billion in daily notional open interest for Ether in 2024, and in 2025 that figure rose to nearly $5 billion,” CME Group reported.

Despite the Federal Reserve’s rate cuts lowering funding costs, crypto markets have not experienced a sustained rebound since the broad sell-off on October 10. Demand for borrowing remains weak, decentralized finance yields are subdued, and traders are increasingly opting for options and hedging strategies over leveraged positions.

Le Shi, managing director at market maker Auros in Hong Kong, observes that as the market matures, traditional investors now have more ways—such as ETFs and direct exchange access—to express their market views. This increased choice narrows price differences between platforms, naturally reducing the arbitrage opportunities that once drove high open interest at CME.

“There’s a self-correcting mechanism,” Le explains. As traders flock to the most cost-effective venues, the basis narrows, diminishing the incentive for carry trades.

On Wednesday, Bitcoin’s price dropped as much as 2.4% to $87,188 before recovering some losses, temporarily erasing all gains made since the start of the year.

Bohumil Vosalik, CIO of 319 Capital, believes the era of nearly risk-free, high-yield returns is ending, pushing traders toward more sophisticated strategies in decentralized markets. For firms specializing in high-frequency and arbitrage trading, this means seeking new opportunities elsewhere.

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