Bitcoin continues to trade around $11,800 today, up a great deal from where it was earlier in the year.
This morning, Omkar Godbole at Coindesk has an interesting take on some particular futures contract activities, where reportedly, leveraged funds are shorting Bitcoin futures at 110% of previous rates, with about 14,000 contracts active.
Godbole explains that this type of short activity doesn’t mean that these traders are necessarily looking for a slump in Bitcoin value, and that they are also not playing with matches (the way it might sound) in using margin bets to short the Bitcoin futures market.
“Bearish bets in bitcoin futures from leveraged funds recently rose to record highs on the Chicago Mercantile Exchange (CME),” Godbole writes, “though that doesn’t necessarily imply a fresh sell-off is coming.”
Instead, he says, they are using an arbitration method called ‘cash and carry’ that takes advantage of price inefficiencies.
In the professional market, traders take wide advantage of cash and carry arbitrage when spot prices are out of line with futures pricing. They buy the asset at the spot price, and then short the futures market, and at delivery, they recoup the balance.
This doesn’t have the same risk as, say, buying futures and options by trying to predict where the market will be in weeks or months, or betting on your favorite team to win the Super Bowl. In that case, one would assume that the institutional players wouldn’t be using leveraged funds that way.
As for actual Bitcoin value, many of the biggest cheerleaders for the household name cryptocurrency are still contending that Bitcoin value is going to be at $20,000 or $30,000 or even $50,000 within two years – that’s why Anthony “the Pomp” Pompliano is such a hero among the rank and file BTC holders. If that holds out to be even faintly true, there’s a simpler way to make money than trying to do a large number of cash and carry arbitrage deals. That simple and direct method has a name – hodling!