A trade like this (partly) is what blew up 3AC. Borrowing has cost and if futures funding premium turns against you and your perceived arb, along with a further divergence against you, it’s game over. Funnily enough that GBTC gap basically closed today; it was a >30% discount when 3AC died. Very nice if you get paid to hedge! Not so nice when you’re paying 0.1% in hourly funding premium.
I'm not familiar with what happened at 3AC but it sounds like there was leverage involved. The arb opportunity i'm talking about is something that exists with all ETFs and keeps them in line with the underlying asset.
3AC was doing the same arb on GBTC (with an extended lock-in before redemption), but GBTC had no mechanism for selling BTC once their premium reversed.
You don't need futures to arb this. You can demand a payout in cash if the ETF price is higher than the Bitcoin price. There will be market makers jumping on that.
if they diverge because an economic shitstorm has started and everybody is buying food for survival with bitcoin, but the rump government still wants its cut of your new mad gainz, bitcoin in the ETF and bitcoin out of the ETF might maintain independent values, FEC vs RMB
Talking about extreme situations, here is another possible scenario - if electricity is then rationed and works only for two hours a day, people with cigarettes or gold may actually buy the food, while people with Bitcoin go hungry, and the value may plummet.
