Why isn't contango in crypto futures markets simply arbitraged away?

Question

Currently (21-Feb-2021), bitcoin futures markets are in contango, with contracts maturing at the end of June trading at about a 9.1% premium to the spot price. My assumption is that one could purchase bitcoin at the spot price while simultaneously selling June futures, locking in a guaranteed 9.1% gain over 4 months – almost a 30% APY. Given that bitcoin has basically zero carrying cost, why is this "too good to be true" opportunity not taken advantage of instantly until the contango is minimized? Alternatively, where am I erring in my assumptions? In the event I am totally misinterpreting the prices in the first place (and because prices can change in the blink of an eye), here is a screenshot from crytpofacilities.com:

BTC Spot/Future Prices at approximately 12:00 EST 21-Feb-2021

arbitrage contango cryptocurrency futures trading

Aganju · Answer

A) you are binding your capital, with no margin possibility
B) you are giving away any chance for a larger gain - many people assume BitCoin will go much higher, and you will not participate in that
C) there is still an entry hurdle to BitCoin for new investors. The typical Joe doesn't know how to trade them, and is worried about the complexity. If you could simply buy BitCoin like ETFs, that would change quickly
D) there might be better investments out there (higher than 9% in four months)
I think B is the major factor.

Why isn't contango in crypto futures markets simply arbitraged away?

One Answer

Add your own answers!

Ask a Question