Risk-Free Earnings in Crypto: What Lies Behind Cash-and-Carry and Carry Trade

Cryptocurrency markets are known for their volatility — prices can decline for months, leaving traders with losses. But there are income-generating methods that do not depend on the direction of the asset's movement. These involve two popular arbitrage strategies: cash-and-carry and carry trade. Both allow earning from the difference between financial instruments, but their mechanics are fundamentally different.

Cash-and-Carry: Spot and Futures Arbitrage

Let's start with a more structured strategy — cash-and-carry. Its essence is simple: an investor simultaneously buys cryptocurrency on the spot market and opens a short position via a futures contract on the same asset. Profit is generated from the price difference between these two instruments.

Example: you purchase 1 BTC for $65,000 on the spot market. At the same time, you sell a BTC futures contract at $66,000. You hold both positions until the contract's expiration. The result is a guaranteed profit of $1,000 regardless of BTC's future price movement.

This cash-and-carry strategy is often used by institutional traders, as the discrepancies between spot and futures are usually small (a few hundred dollars). Additionally, storage and account maintenance fees can completely eat into potential profits.

Carry Trade: Playing on Interest Rate Differentials

This approach originated in traditional finance and works quite differently. Carry trade is based on exploiting the difference in interest rates between various sources of capital and locations.

The logic is as follows: you borrow money at a low rate (for example, from a traditional bank at 5% annually) and invest it on a cryptocurrency platform at a higher interest rate. Some companies offer yields up to 18% annually when depositing stablecoins (USDT, USDC) or the cryptocurrency itself.

Mathematically, it looks attractive: borrow at 5%, deposit at 18% — resulting in a 13% difference with no apparent risks. That’s where the main catch of the strategy lies.

Why specifically stablecoins and not other altcoins? Because investing in volatile assets requires accounting for their price fluctuations. An asset could plummet so hard that the interest earned does not cover the losses from the price drop. USDC and USDT, tied to the dollar, eliminate this factor from calculations.

Direct Comparison: Cash-and-Carry is not Carry Trade

Despite the similar names, these are fundamentally different instruments. The first involves the price difference between spot and futures, the second — the interest rate differential. Which one to choose?

Cash-and-carry: requires a deep understanding of futures markets and monitoring the basis premium. The potential returns are modest, but risks are minimal thanks to the reliability of large exchanges where futures and options are traded.

Carry trade: is almost always accessible — finding a low-interest-capital source can be done at any moment, as well as finding a platform with high cryptocurrency yields. But the reliability of the latter can be problematic. It’s easy to write on a website about 20% annual returns; guaranteeing that the platform will keep these promises is more difficult. Fraudulent services often disappear along with users’ deposits.

Banks and large funds have long used carry trade in traditional finance due to quick access to information and huge capital volumes. Retail investors do not have these advantages.

Main Caution

Both strategies are directly affected by macroeconomic conditions. If central banks raise interest rates, carry trade becomes less attractive. If market volatility increases, the gap between spot and futures narrows, killing the potential of cash-and-carry.

Moreover, no market participant is interested in providing guaranteed risk-free profits. Except for rare moments of extreme market inefficiency, both methods generate modest income.

When choosing between them, remember: cash-and-carry is statistically safer but less profitable; carry trade can yield more but requires particular caution when selecting a platform. Success depends on constant monitoring of banking rates, conditions of crypto services, and the overall economic environment. This material is for informational and educational purposes and does not constitute investment advice.