BTC Triumphs at $41K: Unlocking 10% Returns with Market-Neutral Strategies, Analyst Insights

The resurgence of the "basis trade," a noteworthy approach seen during the 2020/2021 bull market, is being fueled by the upward trajectory of futures premiums. Market-neutral Bitcoin "basis" trading now presents an annualized double-digit return as futures premiums rise above the 10% mark.

While Bitcoin has surpassed $41,000 for the first time since April 2022, bringing joy to directional traders, those following a market-neutral stance find reassurance in steadily increasing returns. The bitcoin cash and carry arbitrage, also recognized as the basis trade, seeks to capitalize on mispricings in both the spot and futures markets, currently boasting a minimum annualized return of 10%, as per data from the crypto derivatives exchange Deribit.

This methodology entails establishing a long position in the spot market while concurrently selling futures when they command a premium over the spot price. Traders stand to gain a fixed return as the premium diminishes over time, aligning with the spot price upon the expiry of the futures contract, irrespective of trends in the spot market.

Presently, front-month, three-month, and longer-dated futures contracts on Deribit are trading at an annualized premium ranging from 8% to 12%. This indicates that executing a cash and carry strategy today could result in an 8% to 12% return, excluding trading expenses.

Samneet Chepal, a cryptocurrency quantitative researcher, highlights, 

"The cash-carry basis trade, a standout in the 2020/2021 bull market, is indicating a resurgence. Currently, the futures basis is hovering near year-to-date highs, around 10%."

The basis trade now provides a notably superior return compared to the risk-free rate of 4.2% offered by the U.S. 10-year Treasury note.

Deribit's Forecast: A Surge in Premiums Across the Future Curve 

With Bitcoin witnessing a 54% surge since October 1, multiple factors contribute to this upswing, including expectations of spot-based exchange-traded funds in the U.S. Deribit attributes the surge to optimism surrounding the imminent ETF decision, the resolution of legal matters involving Binance, escalating geopolitical tensions, and a consistent rise in institutional involvement.

Luuk Strijers, Chief Commercial Officer at Deribit, interprets the escalating futures basis beyond 10% as a robust indicator of the prevailing market sentiment. Samneet Chepal speculates, 

"With ETF news anticipated in early Q1 next year, we may witness these figures ascend even further, potentially surpassing the highs of previous cycles."

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