- Bitcoin futures cash-and-carry trade premiums have diminished from 10% to 6%, showcasing a declining trend in profitability.
- With the reduced returns, traders might pivot towards novel strategies to maximize gains.
- Bitcoin’s price is under significant selling pressure, prompting analysts to predict a drop to $60,000.
Bitcoin futures market is facing a downtrend in profitability, leading traders to seek alternative strategies as new price corrections loom.
Bitcoin Futures Premium Decline
As the selling pressure continues to impact Bitcoin (BTC), the futures market is becoming increasingly less appealing. The profitability margins in Bitcoin futures cash-and-carry trades are rapidly shrinking, leaving traders with fewer opportunities to gain.
Understanding Bitcoin Cash-and-Carry Trades
Cash-and-carry trades are a well-known strategy in the derivatives market, generally involving purchasing the asset in the spot market while concurrently selling it in the futures market.
A few weeks earlier, Bitcoin futures traders secured an almost risk-free annualized premium of 10% in cash-and-carry trades, indicating that the annualized difference between BTC futures and spot prices stood at 10%. However, considering the capital and margin holdings required, the effective return was reduced to 5%. Intriguingly, this annualized premium now stands at 6%, corresponding to a technical return of only 3% when accounting for margin costs in spot markets.
If annualized returns for the Bitcoin cash-and-carry trade fall below the risk-free rate, it becomes less appealing. Renowned crypto analyst Checkmate has indicated that the profitability of Bitcoin futures trades has waned, pressing traders to look for other alternatives as the potential returns no longer justify the risks involved.
Outlook on Bitcoin’s Price Movement
Given that Bitcoin’s price has already fallen over 12% from its June highs, many analysts anticipate a further decline to $60,000. Checkmate, an established Bitcoin analyst, observed that the BTC sell-side risk ratio has reached levels suggesting a significant market shift is on the horizon.
“All accumulative profits have been realized, as well as inevitable losses,” Checkmate explained. He further mentioned that Bitcoin market dynamics are poised to establish a new price range, thereby sparking emotions such as fear, greed, panic, or euphoria, which will drive the next market movement. Currently, Bitcoin’s price formation indicates a falling wedge in lower time frames, increasing the likelihood of a downturn to $60,000.
Conclusion
The diminishing annualized premium in Bitcoin futures cash-and-carry trades illustrates a declining profitability trend. As the returns become less attractive, traders are likely to explore alternative strategies for maximizing their gains. Coupled with the anticipated price correction to $60,000, the Bitcoin market is ushering in a new phase characterized by shifting strategies and potentially amplified volatility.
