Bitcoin futures interest tapped an all-time high in US dollar terms on Monday, reaching over 500,000 BTC worth $36.3 billion.

Analysts say the overwhelming surge in open interest relates to a clever arbitrage play levied by institutional traders between Bitcoin’s futures and spot markets.

The Cash And Carry Trade

In a Tuesday newsletter, lead Glassnode analyst James Check theorized that leveraged funds are simultaneously shorting Bitcoin on the CME while buying up coins in equal measure via the Bitcoin spot ETFs.

“These traders are holding a delta-neutral position, where they are not exposed to the price risk of Bitcoin, as they equal parts long and short,” wrote Check.

This technique is widely known as the “cash and carry trade,” which is utilized by traders whenever a large premium develops between a commodity’s futures and spot prices.

This is often the case with Bitcoin, where perpetual swap traders are currently willing to pay a 10% premium to shorts for the privilege of being long Bitcoin with leverage.

At the time of Check’s post, Bitcoin was trading at $68,400 while the December 2024 futures contract traded for $73,200. At this premium, users of the cash and carry strategy could effectively earn a 6.4% annualized yield, virtually devoid of risk.

“Unless the trader makes a serious mistake with their collateral management, it is highly unlikely these positions are at risk of a margin call or liquidation,” Check wrote.

Arbitrage Traders In Bitcoin

Since the start of the year, Bitcoin futures open interest has grown by 21% (92,000 BTC) in Bitcoin terms, and by 100% in USD terms. Much of the explosive growth occurred in the CME – a home for US-based institutional futures traders.

In Check’s view, this explains why Bitcoin has seen relatively little price volatility in recent weeks despite a resurgence of inflows worth 25,000 BTC last week. While the cash and carry trade has been available to crypto native firms for years, Bitcoin ETFs have made it plausible for a new swath of investors to take advantage of it.

Check said the net impact of the cash and carry trade on boosting or suppressing Bitcoin’s price is “little.” However, users of the strategy add depth to markets and keep spot and futures markets moving closely together.

“What we really need for the market to get moving again is a serious impulse of non-arbitrage demand, which overwhelms spot sell-side from HODLers and existing holders,” he concluded.