Thread by @Brunoschwalbach

1/ I was curious to study the economics of the #bitcoin cash and carry trade nicely explained by @choffstein. Given that US citizens can’t do it., why isn’t everybody else on this?

A South Africans perspective 👇

https://twitter.com/choffstein/status/1388487872508874753?s=21

2/ Disclosure: I have no strong opinions on #crypto itself and this is not investment advice. Simply like understanding why such high expected return (almost) delta neutral carry trades exist in 2021

3/ The route most SAs seem to take is to purchase crypto on local exchanges in local currency.

The trouble with this is that the same crypto is significantly more expensive in local currency due to almost one way traffic currently on the bid.

I don’t think SA is unique here

4/ Looking at a popular local exchange for a smallish $1k equivalent trade, trading costs:

(a) Buying BTC in ZAR at a premium of 3.5% vs frictionlessly buying USD to buy the BTC

(b) The local exchange would’ve charged a transaction cost of almost 2%

5/ (c) The local exchange would’ve charged 1.17% to transfer BTC to an offshore exchange

(d) The offshore exchange would’ve charged around 0.05% to execute the futures leg.

6/ In total, that’s 6.6% in trading costs so far (without even considering the round trip home, tax, effort, bid-ask spread). Granted, this would be less for a higher notional.

7/ I'm sure FOMO makes people rationalise and trivialise these trading costs for a 10x or 100x expected (hopeful) return. But for a cash and carry trade with a current e(r) of (just!) 20%, it just might not cut it 🤷‍♂️
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