Cash-and-Carry, Explained: How the Crypto Futures Basis Works

A gap with a name

Imagine you could buy something at today's price and simultaneously agree to sell it later at a slightly higher price. You don't need a view on whether it goes up or down. You just need the two prices to behave. That, in a cup, is the basis trade — also called cash-and-carry.

First, the vocabulary. The basis is simply the difference between a futures price and a spot price for the same asset. When futures trade above spot, the market is in contango. When futures trade below spot, it's in backwardation. Traders use two opposite sign conventions for this subtraction, so always check which one a chart is using before comparing numbers.

The structure of the trade is short and sweet: buy the asset in the spot market, short an equivalent futures position, and wait for the two prices to meet. Because one leg gains roughly what the other loses when the asset moves, the position is described as delta-neutral — market-speak for "the price direction mostly cancels out."

Why would anyone pay you a premium?

Here's the intuitive bit. Plenty of traders want exposure to Bitcoin without tying up the full purchase price. They buy futures instead, which is a form of built-in leverage. That demand pushes futures above spot, and the premium is effectively the price they pay for convenience. The basis trader supplies that leverage and collects the fee.

A clean arithmetic example: spot sits at 100, a three-month future trades at 103. You buy spot and sell the future. At expiry, if the asset lands at 80, your coin loses 20 but your short future gains 23. If it lands at 130, the coin gains 30 and the short loses 27. Either way you end up with roughly 103 — the 3 is the basis you locked in, before costs. Source material on this trade describes it as a financing business with a known yield and a tail.

To compare opportunities with different expiries, traders annualise: divide the gap by spot, then scale by 365 divided by days to expiry. A 2% basis over 90 days annualises to roughly 8%. Note the word "roughly" — day-count conventions vary, and annualising magnifies small short-dated gaps into dramatic-looking numbers. A 2% gap with five days left looks enormous on an annualised chart and is, in practice, a rounding error away from nothing.

The perpetual version: funding instead of expiry

Crypto added a twist. Perpetual futures — "perps" — have no expiry date. Instead, a funding rate is paid periodically between longs and shorts to keep the contract price near spot. When perps trade at a premium, longs pay shorts. A basis trader who is long spot and short perps collects that funding, typically settled every eight hours on many venues, though intervals differ by platform.

It's worth flagging plainly: with perps there is no convergence date. The income arrives as funding payments and resets each period. If the rate flips negative, the same position starts paying rather than receiving. Research from Cornell on perpetual contracts found that trading activity and bid-ask spreads follow a U-shaped pattern within each eight-hour funding cycle — a reminder that the mechanics shape the market, not just the yield.

The part where "risk-free" quietly leaves the room

You will see cash-and-carry described as arbitrage. The direction is hedged, yes. Everything else is still live.

Margin calls on the short leg. When spot rallies, the short futures position loses money and the venue wants cash that day. The gain on your spot leg is real, but it's sitting in a coin at a custodian, not in your margin account. A perfectly hedged trade can still run out of cash. The size of your buffer, not the size of the spread, decides how large the position can be.

Liquidation before convergence. If the basis widens after you enter, you're marked at a loss on a trade that would have paid in full had you held to expiry. Risk limits react to marks, and a fund can be forced out at the worst point of the spread. Convergence is certain at expiry; nothing is certain before it.

Two venues, two credit decisions. The spot leg and the futures leg sit in different places. If one venue freezes withdrawals or fails, your hedge is gone and the remaining leg is naked. The 2022 exchange failures turned this from theory into invoices.

Fees and financing. A 10% gross basis can shrink to roughly 5–7% net after round-trip fees, margin funding and the opportunity cost of collateral. Headline yields are pre-cost.

What the Treasury market taught us

This isn't a crypto invention. The US Treasury cash-futures basis trade works on identical logic: buy the bond, short the futures, finance the bond in repo — shorthand for borrowing cash against securities as collateral, overnight or short-term.

Federal Reserve research found that hedge funds amassed at least $317 billion in Treasury holdings related to basis trades since the first quarter of 2022. Estimates at end-September 2023 ranged between $260 billion and $574 billion depending on the proxy used — a useful reminder that even the professionals are measuring this trade with a ruler and a squint.

The cautionary chapter: in March 2020, rapid unwinding of basis trades by hedge funds contributed to Treasury market stress. The trade is typically highly leveraged, and leverage plus a funding squeeze is an unkind combination. "The trade looks market-neutral," one source notes, "and is not liquidity-neutral."

Reading the crypto version

In crypto, the basis is driven less by storage costs and more by momentum, sentiment and leverage demand. After US spot Bitcoin ETFs launched in January 2024, the annualised CME front-month basis approached 25% in February 2024 and exceeded 20% in November 2024, per CF Benchmarks, then compressed toward 10% by May 2025 and briefly dipped below zero in March 2025. Aligned pricing benchmarks between ETFs and CME futures reduced tracking error and made the trade more scalable for institutions.

Because the basis is cyclical, the interesting question isn't "what does it yield today" but "what is being paid for, and who is paying it?" A persistently high funding rate signals crowded leveraged longs — historically something that precedes corrections rather than continuation. High funding is a thermometer, not a green light.

A sensible way to hold it all

Basis trading rewards arithmetic over prediction. The structure is accessible to individuals on many venues, but the economics punish small accounts: fixed fees eat a thin spread fast, and running legs across two exchanges adds counterparty risk that no yield compensates for. Jurisdiction matters too — tax treatment of crypto derivatives varies widely, and rules differ on whether certain products are even available to you.

Treat the basis like a seasonal crop rather than a salary. It pays when the premium is fat, thins toward the risk-free rate when enthusiasm fades, and occasionally turns into a lesson about leverage. Nothing here predicts what the spread will do next — that's rather the point.