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Institutional Bitcoin investors are abandoning cash-and-carry arbitrage strategies in favor of outright bullish positions as narrowing price spreads and rising funding costs erode the profitability of once-reliable neutral trades, according to market data from SoSoValue and exchange analytics.
The change signals a broader repositioning away from Cash-and-Carry arbitrage and toward long-term directional bets on Bitcoin, a move driven by narrowing price spreads, rising funding costs, and persistently low market volatility.
The shift matters because Cash-and-Carry arbitrage has historically been one of the least risky ways for institutions to gain exposure to Bitcoin.
Its decline suggests investors are becoming more confident in Bitcoin’s medium- to long-term outlook rather than relying on mechanical pricing inefficiencies between spot and futures markets.
Cash-and-Carry arbitrage involves buying spot Bitcoin, often via ETFs, while simultaneously shorting Bitcoin futures contracts to capture the price difference, or “basis,” between the two markets.
When futures trade at a premium to spot, arbitrageurs lock in that spread as profit, largely insulated from Bitcoin’s price direction.
That opportunity is now shrinking. Analysts note that the basis between spot Bitcoin ETFs and futures listed on the Chicago Mercantile Exchange (CME) has compressed to levels that barely cover transaction fees and funding expenses.
As a result, Cash-and-Carry arbitrage no longer offers the same risk-adjusted returns it did during periods of higher volatility and wider spreads.
At the same time, the cost of maintaining futures positions has risen. Higher funding rates and margin requirements have increased the capital burden of arbitrage trades, further eroding profitability.
With spreads tightening and costs climbing, many institutional desks appear to be reallocating capital away from Cash-and-Carry arbitrage and into outright long exposure.
Market data supports this interpretation. While U.S.-listed spot Bitcoin ETFs have attracted net inflows, open interest in both standard and micro Bitcoin futures on CME has surged.
Importantly, analysts say this increase is not being driven by a matching rise in short positions typically associated with arbitrage hedging.
According to analysts at Bitfinex, the current wave of ETF inflows reflects a change in investor intent. Rather than deploying capital to exploit small, short-term inefficiencies through Cash-and-Carry arbitrage, institutions are increasingly positioning for directional upside.
“Reduced volatility has shifted the profile of ETF buyers toward more ‘sticky’ investors,” — Bitfinex analysts, in a market note.
“They are treating Bitcoin as a longer-term allocation rather than a vehicle for short-term basis trades.”
Bitcoin’s price behavior helps explain the transition. Since its sharp pullback from the all-time high reached in October 2021, Bitcoin has traded within relatively tight ranges.
Recent weeks have been characterized by especially subdued price action, limiting the chances of sharp dislocations between spot and futures prices that arbitrage strategies rely on.
Data on CME futures positioning further reinforces the point. Analysts tracking short exposure say the rise in open interest has been driven largely by speculative longs rather than arbitrage-related shorts.
That imbalance suggests institutions are increasingly comfortable taking outright bullish exposure rather than neutralizing price risk through Cash-and-Carry arbitrage.
The volatility backdrop is a critical factor in the declining appeal of Cash-and-Carry arbitrage. Bitcoin’s annualized 30-day implied volatility, as measured by Volmex’s BVIV index, has fallen to multi-month lows, according to exchange analysts.
Low implied volatility reflects market expectations of smaller price swings, which reduces both the frequency and size of arbitrage opportunities.
“Persistently low volatility compresses futures premiums and removes much of the incentive for carry trades,” — Bitfinex analysts, said, noting that arbitrage strategies thrive when markets are turbulent and futures trade at sustained premiums.
In such an environment, capital efficiency becomes paramount. Allocating balance sheet to Cash-and-Carry arbitrage that yields marginal returns makes less sense when investors believe Bitcoin’s long-term risk-reward profile is improving.
As a result, many institutions appear willing to tolerate directional exposure in exchange for higher potential upside.
This does not mean Cash-and-Carry arbitrage is disappearing entirely. Market participants note that the strategy could regain relevance if volatility returns, futures premiums widen, or macro shocks reintroduce dislocations between spot and derivatives markets. For now, however, the data suggests that arbitrage is being deprioritized.
The gradual retreat from Cash-and-Carry arbitrage has broader implications for Bitcoin’s market structure. Arbitrage strategies tend to dampen volatility by quickly correcting price mismatches.
As their presence diminishes, price discovery may become more sensitive to outright buying and selling pressure from directional investors.
For crypto investors, the message is twofold. First, institutional demand appears to be returning through regulated ETF channels, a development that can provide structural support to prices.
Second, the nature of that demand is changing, with fewer neutral trades and more conviction-driven positioning.
As long as volatility remains low and futures spreads stay compressed, Cash-and-Carry arbitrage is likely to remain on the sidelines. Whether it returns in force will depend on a renewed divergence between spot and futures markets.
Until then, the balance of evidence suggests institutions are choosing to bet on Bitcoin itself rather than on the mechanics of its market inefficiencies.
