I don't entirely understand this; could you provide a concrete example, or actual trades, that could be involved in such a position? (I'm just curious how it would actually look like in practice.)
CME: short $1m BTC futures (which are dollar settled and thus BTC/USD)
On Binance you are long BTC, and short USDT. On CME you are short BTC and long USD (implicitly on the fiat legs).
So if we add that up, the BTC positions net off and you’re just left with short USDT and long USD which is the desired outcome.
In practice, if Tether implodes I would expect everyone to sell Tether (by buying crypto with it) and then due to panic, to send that crypto to exchanges with fiat off ramps where they will then sell it. So the price of BTC on Binance goes to the moon, and the price on CME collapses. You will likely lose whatever money you had on Binance (your profit is denominated in worthless USDT and Binance is probably bankrupt at this point) however you should make multiples of that with your CME short.
This is all of course not investment advice and extremely hypothetical.
I'm not quite sure I follow - in the event that Tether implodes, if you expect the long $1m BTC/USDT exposure to be worthless (assuming you lose the money you had on Binance, and Binance goes under), and your short BTC/USD exposure to make money (since it's a short position, you can only make 100% gain at maximum), doesn't that net out to zero PnL (-$1m loss in long BTC/USDT, and +1m gain in short BTC/USD)?
The difficult part seems to be getting someone lending you $1m in USDT, isn't it? From their POV, you're getting exposed to BTC volatility, and the collateral is likely to be too high to make this practical.
Basically, how do you buy $1m worth of BTC/USDT perps without depositing $1m of USD into Binance? Let's say if we put in $100k USD with a 1:10 leverage, it means the position on Binance is wiped out if BTC drops by more than 10%. So the only way for this to work is to deposit $1mil of USD into Binance and opening the position. But this means we lost a whole $1m when Binance implodes, cancelling our gain in the short position.
Otherwise, we need to borrow $1mil of USDT to open the Binance BTC/USDT position.
On May 19th, Binance froze up and prevented people from adding margin. Lawsuit about it now. The claims are that Binance was insolvent and redid the trades to stabilize themselves. See Frances Kim for info or an FT article about the lawsuit.
Whatever the reason, no guarantee you can deposit collateral.
CME: short $1m BTC futures (which are dollar settled and thus BTC/USD)
On Binance you are long BTC, and short USDT. On CME you are short BTC and long USD (implicitly on the fiat legs).
So if we add that up, the BTC positions net off and you’re just left with short USDT and long USD which is the desired outcome.
In practice, if Tether implodes I would expect everyone to sell Tether (by buying crypto with it) and then due to panic, to send that crypto to exchanges with fiat off ramps where they will then sell it. So the price of BTC on Binance goes to the moon, and the price on CME collapses. You will likely lose whatever money you had on Binance (your profit is denominated in worthless USDT and Binance is probably bankrupt at this point) however you should make multiples of that with your CME short.
This is all of course not investment advice and extremely hypothetical.