Bitcoin Futures Yield's 'Humiliation': Once Over 20%, Now Lagging US Treasuries

▲ Bitcoin (BTC), US Dollar (USD) ©

The representative arbitrage yield for Bitcoin (BTC) futures, which once exceeded 20%, has plummeted to 3%, falling even below the 3.8% yield of US 2-year Treasury bonds.

According to Coindesk, a cryptocurrency specialized media outlet, on August 3 (local time), Bitcoin futures carry trades have recorded lower yields than US short-term Treasury bonds every month since February. The strategy, which offered yields of over 20% on regulated and unregulated exchanges during the 2021 bull market, is now less attractive than government bonds.

A carry trade is a strategy that involves selling Bitcoin futures while simultaneously buying Bitcoin spot exchange-traded funds (ETFs) to profit from the basis, which is the price difference between futures and spot. According to Glassnode, the annualized 3-month futures basis has remained below the US 2-year Treasury yield for 157 days.

Glassnode explained that the 3-month basis has been offering a lower yield than 2-year Treasury bonds since February, and such a prolonged inversion has only occurred once before, from August 2022 to January 2023. That inversion trend ended at the cyclical low of the cryptocurrency market.

When carry trade yields fall below short-term Treasury bonds, the incentive for institutional and professional investors to inject funds into the futures market decreases. According to Coinglass, Bitcoin futures trading volume peaked at $1.47 trillion in February and then declined, barely exceeding $880 million in July. The overall cryptocurrency bear market also contributed to this contraction.

However, a decline in basis yield does not necessarily mean a structural retreat in the market. It could indicate a reduction in price discrepancies between interconnected markets, signaling increased liquidity and market maturity. As price differences narrow, the spread between bid and ask prices tightens, and risk-averse trading becomes easier, while opportunities for large-scale arbitrage decrease.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*