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%.

AccessTimeIconOct 25, 2023 at 9:07 a.m. UTC
Updated Oct 25, 2023 at 2:19 p.m. UTC
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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.

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.

Annualized BTC funding rates across major exchanges (Velo Data)
Annualized BTC funding rates across major exchanges (Velo Data) (Velo Data)

Edited by Sheldon Reback.


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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.

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