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Currently (21-Feb-2021), bitcoin futures markets are in contango, with contracts maturing at the end of June trading at about a 9.1% premium to the spot price. My assumption is that one could purchase bitcoin at the spot price while simultaneously selling June futures, locking in a guaranteed 9.1% gain over 4 months - almost a 30% APY. Given that bitcoin has basically zero carrying cost, why is this "too good to be true" opportunity not taken advantage of instantly until the contango is minimized? Alternatively, where am I erring in my assumptions? In the event I am totally misinterpreting the prices in the first place (and because prices can change in the blink of an eye), here is a screenshot from crytpofacilities.com:

BTC Spot/Future Prices at approximately 12:00 EST 21-Feb-2021

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We are talking about Billions of dollars of transactions apparently being traded daily, if exchange numbers are believed. So, you can safely assume the presence of arbitrage is an indication of something other than 'market ignorance'. ie: assume this price spread represents an acknowledged transfer of risk/reward.

I suggest that one likely reason for this spread is the difference in credit risk between known financial institutions who are the counterparties for futures products, vs the credit risk of crypto exchanges. Yet again, we see evidence that the concept of a 'trustless' financial product is not all roses.

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A) you are binding your capital, with no margin possibility
B) you are giving away any chance for a larger gain - many people assume BitCoin will go much higher, and you will not participate in that
C) there is still an entry hurdle to BitCoin for new investors. The typical Joe doesn't know how to trade them, and is worried about the complexity. If you could simply buy BitCoin like ETFs, that would change quickly
D) there might be better investments out there (higher than 9% in four months)

I think B is the major factor.

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    Disagree with B and D. If you factor in that the 30% APR is apparently risk free, there's no other investment out there that matches it. I would take a 30% APR every day and twice on Sundays.
    – D Stanley
    Commented Apr 19, 2022 at 13:19
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    Disagree with C as well. Do you know how much money is locked up in crypto and how much money is spent running barrier-free arbitrage bots at full speed? It doesn't need new investors, just one or two investors who notice the available arbitrage or who have already programmed their bots to exploit this kind of arbitrage. (Maybe it was different in 2021)
    – Criticizing Israel not allowed
    Commented Apr 19, 2022 at 16:57
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OP has not accepted an answer. Why don't I elaborate Aganju's? For convenience, let's round all numbers.

A futures contract is an agreement to buy or sell an underlying asset (Bitcoin, in this case) at a future date at a predetermined price.

Pretend I sell you a futures contract for Bitcoin at $50,000 for June 1. This means that on June 1 you pay me $50,000, and I deliver to you 1 BTC. Since the current price (or "spot price") is now $40,000, there's a difference between the futures price and the spot price. This phenomenon (futures > spot) is called "contango".

Now one could take advantage of contango by buying 1 BTC (at spot price, $40K), and selling a futures contract for 1 BTC at $50K. On June 1, you pocket the difference for a profit of $10K — (minus) exchange and broker fees.

If many traders (or a few mighty ones) do this, this would drive up the spot price and drive down the futures price, bringing the two closer together. This process is called arbitrage — where traders profit from a price imbalance, and make trades that end up reducing this imbalance.

So why wouldn't arbitrage cause this price difference to become teeny? If there's $10K up for grabs, why wouldn't people jump on it?

Aganju outlined several possible reasons:

A. By making this trade, you're locking your money away until the futures contract expires. In that time, you can't use it as margin for leveraged trading. In fact, you can't use it for anything else at all.

B. B follows up on point A. If you believe that BTC will increase > $10K in price, it's better to simply buy BTC and hold that.

C. It may be wearisome to trade and hold BTC. There may simply not be enough people to take advantage of these arbitrage opportunities. If this is the true reason for the contango, then someone more skillful can exploit this opportunity.

D. D generalizes B, namely that you can invest money in more profitable securities during this period.

So the answer boils down to 2 main reasons:

  1. Either too few people are aware of the difference, and are able to act on it. This case represents a real arbitrage opportunity.

  2. Or for traders as a whole, the gains from arbitrage are not worth locking in that amount of money for that time period. Typically because other trades or investments yield a higher expected return.

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  • #1 doesn't make sense when you consider that here we are, talking about it. #2 only makes sense if the amount of apparent arbitrage is the same as the 'risk free rate' in the market. Given the price variance is higher, there must be some other reason [I suggest below it is the credit risk consideration {which realistically includes the Pain in the Ass factor of considering hardwallet coin storage, as well}.
    – Grade 'Eh' Bacon
    Commented Apr 19, 2022 at 19:28

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