Last Updated on April 14, 2021 by Jason
Smart traders are yielding returns of more than 40% as Bitcoin widens its contango, which is the spread between the prices in spot and futures markets, otherwise known as futures premium/basis.
Pankaj Balani, CEO of Delta Exchange says that the premium on Bitcoin futures is expanding right now to as much as 40% per annum, which means that there is a lot of interest from traders who trade through cash and carry. This way, traders are able to safely lock-in risk-free yields.
The idea of cash and carry allows a trader to profit from price discrepancies between one or more exchanges. It is otherwise known as arbitrage trading. It involves purchasing an asset in the spot market against a spot position in the futures market, and making money from the difference. This way, traders are guaranteed a fixed return, because the premium will decay over time and come together with the spot price at the deadline.
According to the graph from Skew above, Bitcoin’s June deadline futures is listed on major platforms like BitMEX and Binance between 44% and 48%. Interestingly, those trading on Delta Exchange are doing so at 30%.
This means that a carry trade that is taken now is going to result in a return of 44% to 48%, which is markedly higher than interest rates around crypto deposits offered by lending platforms like BlockFi and Genesis.
Patrick Heusser, head of trading at Crypto Finance AG, says that the widening of the basis means that Bitcoin’s most recent breakout beyond $60,000 is driven solely by derivatives.
CoinDesk 20 data indicates that Bitcoin broke out of a multiple week consolidation on Saturday, with an immediate rise of $3000 to $61,065. Futures premium increased as well as the spot market price, increasing about 32% to more than 40%.
Now, there are analysts keeping an eye on the weekly close. However, the word in the market is that there are growing concerns around the uptick in futures funding rate. This means that the crypto might have issues securing a weekly or even daily close or more than $60K. Right now, Bitcoin is trading closer to $59,700.