Bitcoin Market-Neutral Bets Offer 10% Return as BTC Tops $41K, Analysts Say

• The market-neutral bitcoin "basis" trade offers an annualized double-digit return as futures premium rise above 10%.
• The strategy could become more attractive with the launch of spot ETFs next year, one analyst said.

Bitcoin [BTC], the leading cryptocurrency by market value, has surged past $41,000 for the first time since April 2022.

While the rally is undoubtedly good news for directional traders, market-neutral traders who intend to make steady returns irrespective of price trends need not feel left behind, as return on such strategies is steadily climbing.

The bitcoin cash and carry arbitrage or the so-called basis trade, a market-neutral strategy seeking to profit from mispricings in the spot and futures market, now offers at least 10% annualized return, data from crypto derivatives exchange Deribit show. The basis is the difference between prices for futures and the spot price of the underlying asset.

The strategy involves taking a long position in the spot market and simultaneously selling futures when futures are trading at a premium to the spot price. Setting opposing positions helps traders collect a fixed return as the premium evaporates over time and converges with the spot price on the futures contract’s expiry date, irrespective of the spot market trend.

Front-month, three-month and longer-dated futures contracts listed on Deribit traded at an annualized premium of 8% to 12% at press time. In other words, a trader setting a cash and carry strategy today can expect an 8% to 12% return (excluding trading costs) from the mispricing in the two markets.

“The cash-carry basis trade, a standout in the 2020/2021 bull market, is hinting at a resurgence. Currently, the futures basis is hovering near YTD highs, around 10%,” crypto quant researcher Samneet Chepal told CoinDesk.

The basis trade now offers a notably higher return compared to the so-called risk-free rate of 4.2% offered by the U.S. 10-year Treasury note. That said, the spread between yields on the basis trade and the 10-year note is nowhere close to what we saw in early 2021 when three-month BTC futures traded at a premium of 40% and the 10-year note yielded around 1.5%. But things could improve, assuming BTC extends the recent bull run.

"This could be just the beginning. With ETF news expected in early Q1 next year, we might see these numbers climb even higher, potentially surpassing previous cycle highs," Chepal added.

All else being equal, futures contracts typically trade at a premium to the spot price, and the premium widens during bull runs. Bitcoin has risen 54% since Oct. 1, for several reasons, including the expected launch of one or more spot-based exchange-traded funds in the U.S.

Deribit attributes this surge to a confluence of factors, including widespread optimism in anticipation of the pending ETF decision, easing concerns following the settlement of Binance’s legal matters, escalating geopolitical tensions, and the steady increase in institutional engagement, the exchange’s Chief Commercial Officer Luuk Strijers told CoinDesk.

“Another supporting sign is the futures basis rising beyond 10%, a strong indicator of current market sentiment,” Strijers said.