Bitcoin 'Carry Trade' Can Net Annual Gains With Little Risk, Says PlanB

Recently, PlanB, a crypto investor and analyst active on Twitter, described a Bitcoin trading strategy that yields a stated 7-10% profit annually with limited downside risk.

"Bitcoin cash and carry will net you 7-10% annualized return. almost risk free."

If Bitcoin trades at $9,000 on one exchange and $10,000 on another, a trader can buy BTC on the cheaper exchange, transfer it to the more expensive exchange, and sell it there for a $1,000 profit per BTC. Over the past several years, the crypto market has seen numerous exchanges added to its landscape, giving traders more options than Bitcoin's early days.

PlanB's mentioned trading strategy involves both spot Bitcoin trading and Bitcoin futures trading.

Traders might look to an exchange such as Coinbase to buy spot BTC. Alternatively, Bitcoin futures trading is a derivative trading product based on Bitcoin's price.

If a trader enters a 1 BTC long position while Bitcoin trades at $5,000, and holds that position through expiration, that trader receives a settlement of 1 BTC after expiration, regardless of Bitcoin's price at the time of expiration.

Bitcoin's futures and spot trading step a delicate dance as Bitcoin futures prices can sometimes trade at a premium to spot BTC, depending on expiration.

At press time on Nov. 5, Coinbase shows Bitcoin trading around $9,360, while CME's November Bitcoin futures product trades at $9,420.

CME's cash-settled Bitcoin futures and Bakkt's physically-settled Bitcoin futures often trade at higher levels compared to BTC's spot trading, the analyst explained in a podcast interview with Stephen Livera.

"That opens the door to a classical carry trade construction," PlanB said.