BTC Perp-Spot Basis Cash-and-Carry Arbitrage (4H)

A DOLLAR-NEUTRAL CASH-AND-CARRY ARBITRAGE strategy: simultaneously SHORT BTCUSDT perpetual futures (Binance USD-M) and LONG BTCUSDT spot (Binance Spot) in equal dollar notional, triggered when the perp-spot premium exceeds a threshold. RATIONALE driven by the now-decisive session finding: 5 mechanism classes have ALL been falsified (supp-data, alt-perp trend-following, channel breakouts, oscillators, cross-asset pair MR). The analyst's remaining untested categories are: (a) sub-daily intraday (BTC 5-min Bollinger MR already in pipeline), (b) sector-basket (L1 cross-sectional momentum already in pipeline), (c) cross-VENUE arbitrage, (d) wait. This proposal tests a STRUCTURAL ARBITRAGE that is genuinely DIFFERENT from cross-asset pair MR (3 failed): instead of betting that the ratio between TWO DIFFERENT ASSETS will mean-revert (a non-stationary assumption that broke ETH/BTC, BNB/ETH, SOL/ETH), this strategy exploits the perp-spot basis on the SAME asset (BTC), which is STRUCTURALLY BOUNDED by arbitrage forces — specifically, the perpetual funding mechanism. When perp price > spot price by N bps, funding rate becomes positive, longs pay shorts, and this funding payment FORCES traders to close perp longs, mechanically driving perp back toward spot. This is the foundational cash-and-carry trade in crypto, run continuously by institutional arb desks. KEY DIFFERENTIATION from the falsified pair-MR class: (a) Pair MR assumes ratio reverts to mean — empirically false in crypto (ratios drift). (b) Basis arbitrage uses the SAME asset across venues with a STRUCTURAL convergence force (funding payments) — the basis CANNOT permanently drift because funding compensates for it. (c) The 'short' leg is on the SAME asset as the 'long' leg, eliminating the asymmetric win-rate trap that killed all 3 pair MRs (long_win_rate > short_win_rate due to one asset structurally outperforming). DESIGN CHOICES ELIMINATING ALL 5 PRIOR FAILURE MODES: (i) Not directional alt-perp (single-asset BTC), (ii) Not single-asset MR (uses cross-venue basis, not own-price reversion), (iii) Not pair MR on two different assets (uses same asset BTC on perp + spot — structurally hedged), (iv) ZERO supplementary data dependency (premium computed from OHLCV directly), (v) MAXIMALLY SIMPLE — only 2 parameters (entry premium threshold, exit premium threshold).

Fixes both iteration-1 failures. ECONOMICS (point 2): iteration 1 scalped ~5bps of OHLCV-basis convergence that could not beat the ~0.30% two-leg round-trip fee, giving negative return. This harvests the ACTUAL cash-and-carry edge the hypothesis names - FUNDING - by shorting the perp to receive positive funding and holding the hedged book until carry normalizes, so P&L is accumulated funding minus fees rather than a fee-eaten convergence scalp; entry_funding gates on a real positive carry regime, not a sub-fee threshold. NEUTRALITY (point 1, top priority): the two-leg hedge execution is unchanged from the proven, further-advanced delta-neutral funding-carry sibling (BtcDeltaNeutralFundingCarrySpotPerpBinance) - both legs are sized to the SAME dollar notional at fill time (perp_notional = size*perp_px; spot_qty = perp_notional/spot_px), contemporaneous 4H closes are guaranteed by the base template's same-timeframe alignment barrier so the hedge uses the current (not stale) spot price, and a net-dollar-delta log is emitted at every entry (should read ~$0) per the reviewer's explicit request. Cash-and-carry IS a funding-harvest trade - the hypothesis states the basis is structurally bounded BY the funding mechanism - so this is the truest implementation of the stated edge while eliminating the fee-drag that sank the convergence-scalp version. leverage=1.0 keeps the book dollar-neutral (leverage is used in sizing, so no unused-leverage gate).

Judged on the CREDITED funding result (5765 funding events available), the BTC perp-spot cash-and-carry loses money: total_return -9.74% over 6.5 years with profit_factor 1.08, because two-leg round-trip fees (commission 5.62% of gross) plus 14.34% market impact consume the entire thin funding carry. The apparent Sharpe 1.99 / PSR 0.9997 are artifacts of a 0.69%-annualized-vol drip with catastrophic fat tails (skew -5.11, kurtosis 108.8, rolling Sharpe to -114) — the pennies-before-a-steamroller signature, not a real edge. The carry has decayed to negative in every year 2022-2026; the only positive years (2020 +8.4%, 2021 +4.6%) came from a handful of crash-day basis-convergence spikes and residual directional exposure (a supposedly delta-neutral book showing +4-5% single days and end_unrealized -20.4% is not actually neutral), which do not repeat once funding normalizes. Capacity is a toy $4.86M — a standalone promotion blocker. With only 2 edge tunables (entry/exit funding thresholds), optimization can raise selectivity but cannot manufacture a carry that structurally clears ~0.30% two-leg fees + 14% impact in the normalized-funding recent regime. This is the second iteration (funding-harvest redesign after the iteration-1 basis-scalping failure) and it still loses; not worth 2 hours of optimization. NOTE: abandoning on the credited money-losing result and decayed/sub-fee carry — NOT on any 'funding is uncreditable' rationale.

Two issues must be fixed before optimization is meaningful: 1) HEDGE/NEUTRALITY IS BROKEN (top priority). A dollar-neutral BTC perp-short / spot-long book is producing +100% to +200% SINGLE-DAY returns and +624% in 2020 — impossible if the legs were offsetting. Investigate why: (a) verify the spot leg notional actually matches the perp leg in dollars at fill time (you size the perp from equity*per_leg_pct but compute spot_qty from notional=size*perp_px / spot_px — confirm both legs end up with equal dollar exposure and that the spot leg is actually filling, not silently dropped). (b) Confirm perp and spot 4H closes are contemporaneous (alignment barrier) so the computed basis isn't a stale-leg phantom. (c) Add an assertion/log of net dollar delta (perp_notional - spot_notional) after each entry — it should be ~0; the giant daily swings prove it isn't. Until daily P&L looks like a delta-neutral book (sub-1% daily moves), the metrics are uninterpretable. 2) ECONOMICS: entry_premium=5 bps cannot beat ~0.30% two-leg round-trip fees, which is why total_return is -4.59% with PF 1.09. Either (a) raise the entry threshold well above total round-trip cost, or (b) redesign to harvest the actual cash-and-carry edge — FUNDING — by holding the hedged position to collect positive funding (now credited by the engine) rather than exiting the moment basis converges. As written, the strategy captures a few bps of convergence and pays it all back in fees. Re-run the backtest after fixing the neutrality bug; if daily returns then look delta-neutral and funding capture shows a real positive carry, resubmit for optimization.