Bitcoin Price Drop Impacts Futures and Spot Market Dynamics

Bitcoin Price Plunge Affects Futures and Spot Market Dynamics

The recent decline in Bitcoin’s (BTC) price has significantly reduced the disparity between futures and spot prices, diminishing the attractiveness of carry trades that capitalize on these market differences. Over the last 24 hours, the leading cryptocurrency has experienced a staggering drop of more than 18%, plummeting to approximately $50,000, a level not seen since February 2024. This sell-off is part of a broader wave of risk aversion permeating global markets, likely triggered by a sharp appreciation of the anti-risk Japanese yen and recent turmoil in the U.S. bond market.

According to data provided by Velo Data, the annualized three-month futures premium on Binance, one of the largest cryptocurrency exchanges, has nosedived to 3.32%, marking its lowest point since April 2023. Similar trends have been observed on other crypto exchanges such as OKX and Deribit, where futures premiums have also declined.

In addition, futures contracts traded on the Chicago Mercantile Exchange (CME), which are favored by institutional investors, are now closely mirroring spot prices. This alignment indicates that the returns from the traditional cash and carry strategy—where traders take a long position in the spot market or in U.S.-listed ETFs while simultaneously shorting futures—are now at parity or even less than the yields offered by the 10-year U.S. Treasury note.

This cash and carry strategy saw a surge in popularity among institutional investors during the first quarter of the year when futures were trading at a premium exceeding 20%. This premium was believed to have contributed significantly to the inflows into spot ETFs during that period.