Cash-and-Carry and Carry Trade: Two Strategies for Guaranteed Income in Crypto

In practice, cryptocurrency markets often work against the average trader — assets can decline in value for extended periods, creating losses. However, professional investors have methods to profit regardless of the trend direction. Cash-and-carry and carry trade are two powerful arbitrage strategies that allow earning income in any market conditions.

How Percentage Arbitrage Works Through Carry Trade

The term carry trade has recently migrated from traditional finance to the crypto industry. Essentially, it’s a percentage arbitrage based on exploiting differences in yields across various financial instruments and platforms.

The mechanism is simple: an investor borrows at a low interest rate somewhere, then transfers these funds to a platform offering higher deposit returns. After the period ends, the borrowed amount is repaid, and the difference remains as profit.

Let’s consider a practical example. American banks offer interest rates around 5% annually — a decent rate. However, some crypto platforms offer up to 18% annually on stablecoins and other digital assets. In this scenario, a logical step would be to take a loan from a traditional bank at 5%, invest the funds in USDT or USDC, and then place them in a high-yield crypto deposit.

Why stablecoins (USDT, USDC) and not volatile cryptocurrencies? The answer is obvious — the price of stablecoins is pegged to the dollar, eliminating the risk of asset value decline. Working with volatile assets requires accounting for price fluctuations, which can completely offset the profit from interest rate differences. A potential income of 13% (the difference between 18% and 5%) can evaporate if the asset drops in value by 15%.

Cash-and-Carry: Profiting from Spot and Futures Price Discrepancies

Cash-and-carry is an alternative arbitrage strategy based on a completely different principle. Here, the trader simultaneously opens a long position (buy) on the spot market and sells a futures contract on the same asset. This strategy only works if there is a noticeable divergence between spot and futures prices.

A specific scenario: you buy 1 BTC at the current price of $65,000 on the spot market. At the same time, you sell a BTC futures contract at $66,000, expiring in one month. When the futures expire, the position is closed. Regardless of how BTC’s price moves during the month, your profit is fixed at $1,000 (the difference between buy and sell prices).

There are variations of this strategy where options replace futures. The principle remains the same — locking in profit from price differences across different instruments.

Comparison: Reliability vs. Potential Returns

Both strategies are arbitrage but operate very differently. Carry trade exploits interest rate discrepancies between banks and crypto platforms, while cash-and-carry uses the spread between spot and derivative prices (futures).

In practice, cash-and-carry requires in-depth knowledge of futures markets and market microstructure. The costs involved often exceed initial expectations. Besides broker commissions, you must consider expenses for storing crypto, account fees, and other transaction costs, which significantly reduce the final arbitrage profit. Moreover, large price discrepancies are rare — markets are quite efficient, and major players quickly close price gaps.

Carry trade appears more versatile. At any moment, there’s always fiat currency with low interest rates, and crypto platforms periodically offer attractive yields. The key to success is choosing a reliable and solvent platform. It’s easy to make a website promising 30% annual returns; it’s much harder to fulfill that promise and return investors’ funds. That’s why reputation checks are a critical step before depositing funds.

It’s worth noting that in traditional economies, carry trade is actively used by large banks and institutional funds. This is due to their access to advanced market information, huge capital volumes, and risk management structures. Retail investors are at a disadvantage but can still cautiously apply this strategy.

The Dynamic Nature of Both Strategies

It’s important to understand that both methods depend on constantly changing market conditions. Bank interest rates fluctuate based on central bank decisions. Offers on crypto platforms change weekly or even daily. What worked effectively a month ago may become unprofitable today.

Carry trade generally shows more stable average returns over the long term but carries the risk of encountering a fraudulent platform that could disappear with your funds. Cash-and-carry offers more modest returns but is traded on reputable, regulated futures exchanges, reducing credit risk.

Which Strategy to Choose

The optimal choice between carry trade and cash-and-carry depends on your investor profile, risk appetite, and market experience. For beginners, cash-and-carry may seem more predictable, as futures exchanges operate under strict oversight and do not hide their terms.

For those willing to accept higher risk for potentially higher returns, carry trade can be considered — provided you thoroughly analyze the financial stability of the crypto platform and verify its history.

Successful application of both strategies requires constant monitoring of economic conditions across different countries and regular review of the terms offered by financial platforms and crypto services. The market moves quickly, and what is relevant today may become obsolete tomorrow.

Disclaimer: This material and the information contained herein are not financial or investment advice. The author’s position does not necessarily reflect the views of financial analysts and independent experts.