Buying Bitcoin without betting on a rally may not pay

The cash-and-carry strategy, which pairs a Bitcoin purchase with a futures sale, seeks to earn the premium between these two markets as their prices converge. However, recent pricing analysis shows this strategy may not be profitable at current levels. On November 10, the premium was approximately $119 per Bitcoin before costs, which falls short of the roughly $135 needed to finance the purchase for 17 days based on current borrowing rates.

CME's November Bitcoin futures settlement was listed at $73,805 per BTC on November 10, while Coinbase's BTC-USD price at the settlement window closed at $73,685.73. This created a $119.27 premium, representing about 0.16% of the spot price. Using a 17-day period until November 27 expiry and a simple 365-day annualization, this translates to a gross annualized carry of approximately 3.48%.

The New York Fed's SOFR (Secured Overnight Financing Rate) stood at 3.88% effective November 9, measuring overnight borrowing secured by Treasury securities. When financing the entire $73,685.73 spot purchase for 17 days at this rate using a 360-day convention, the cost would be approximately $135.01. This creates a $15.74 shortfall before trading and other costs are factored in.

Borrowing costs challenge profitability

The calculation reveals how borrowing costs can significantly impact the profitability of this hedged strategy. Even using the minute's lowest spot trade would leave only roughly $21 per BTC after financing costs, a small allowance that depends on more favorable spot pricing than the closing-price proxy suggests.

Additional factors further complicate the trade's economics. Margin requirements demand substantial capital, as CME futures are marked to market daily. If Bitcoin prices rise, the short futures position can require cash payments even while the spot holding gains value elsewhere. Investors need sufficient liquidity to maintain the hedge throughout the position's life.

ETF outflows and policy uncertainty

US spot Bitcoin ETFs recorded $95 million in net outflows on November 10, following $201 million on November 9, according to Farside's data. These continued redemptions suggest investors are not rushing into new positions, though these totals don't specifically identify hedging strategies.

The macro backdrop adds complexity to the trade's viability. The October CPI release showed consumer prices rising 0.4% month-over-month, with core prices up 0.3%. Before this data, Federal Reserve Governor Christopher Waller indicated that a core reading around 0.3% or higher would warrant considering a 50-basis-point December rate increase.

While the November futures contract expires before the Fed's December 8-9 meeting, policy expectations can still affect present funding conditions and the economics of rolling into later contracts. This uncertainty adds another layer of risk to the hedged trade's potential profitability.

Conditions for trade viability

For this hedged Bitcoin trade to become attractive, executable futures premiums would need to leave room after actual funding costs, execution expenses, and the cash required to maintain both positions. Evidence of new carry demand would combine favorable pricing with additional spot or ETF exposure matched by corresponding futures hedges.

Bitcoin could also recover through stronger directional spot demand from buyers willing to take outright price risk. The cash-and-carry strategy represents just one possible source of support, with its own financial hurdles that must be overcome before it becomes consistently profitable.

Ultimately, the buying decision for this hedged Bitcoin trade hinges on whether the premium between spot and futures prices can consistently exceed the combined costs of financing, execution, and maintaining both positions open. Market participants will be watching closely for changes in these dynamics.