The bitcoin futures yield collapse: Once over 20%, now less than Treasury notes

Once a lucrative opportunity for carry traders, bitcoin futures have shifted, continuously underperforming conventional U.S. Treasuries since February. In the 2021 bull market, carry trades yielded 20% or more on regulated and unregulated crypto exchanges, involving shorting bitcoin futures while buying spot ETFs. Now, the yield has plummeted to just 3%, compared to a 3.8% average yield on two-year Treasuries.

The futures-basis, the gap between futures and spot prices, has been lower than the two-year Treasury note for over five months, as evidenced by data from Glassnode. Traders have typically exploited this basis to profit from the discrepancy between futures and spot prices. However, the three-month basis has now yielded less than the two-year Treasury note for 157 days, according to Glassnode's chart.

When carry trades return less than short-term Treasuries, it diminishes the incentive for traders and allocators to invest capital in futures. This development partly contributes to the dwindling activity in bitcoin futures, with July volume reaching over $880 million, a significant drop from the February peak of $1.47 trillion.

The decline in the basis also suggests increased market liquidity and maturity. This fading basis trade profit arises from price discrepancies between linked markets. Consequently, a collapsing yield signals shrinking inefficiencies, leading to tighter bid-ask spreads, improved hedging, and fewer outsized arbitrage opportunities.

Binance remains the dominant exchange in the crypto space, expanding its offerings beyond spot and derivatives into real-world assets, payments, savings, yield, and other financial services.