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Bitcoin Funding Fee Arbitrage Trades Offer Over 10% Yield
The funding fee arbitrage involves selling perpetual futures while simultaneously buying the cryptocurrency in the spot market. The strategy currently offers an annualized yield of over 10%.
Updated Oct 25, 2023, 2:19 p.m. Published Oct 25, 2023, 9:07 a.m.
Arbitrage strategies, among the most popular approaches during previous crypto market bull runs, are back in vogue thanks to the widening spread between prices for perpetual futures tied to bitcoin [BTC] and the spot market price.
The difference, represented by funding rates (that is, the cost of holding long/short positions in perpetual futures, also called perp premium), has surged above an annualized 10% across major exchanges, including Binance, according to Velo Data. Positive funding rates mean buyers, or longs, pay shorts to keep their leveraged bullish bets open.
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Traders can then set up a so-called funding fee arbitrage by selling perpetual futures while simultaneously buying the cryptocurrency in the spot market. That allows them to safely pocket the 10% in funding while bypassing the risk from a continued price rally.
"This is an excellent market for arbitrage opportunities where (nearly) risk-free returns of 10-20% can be achieved," crypto services provider Matrixport's research and strategy head Markus Thielen said. "BTC's annualized perp premium was 40% yesterday. It has pulled back to 13% today, but still good enough for arbitrage trades."
The surge in the perp premium is consistent with the previous bullish trends. Bitcoin has risen 25% in four weeks, with most gains happening during North American trading hours.
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