Bitcoin’s (BTC) recent precipitous price decline has significantly narrowed the chasm between futures and spot prices, undermining the allure of carry trades that capitalize on such market discrepancies.

The preeminent cryptocurrency by market capitalization nosedived over 18% to $50,000 within a mere 24-hour span, plummeting to its lowest valuation since February 2024. This sell-off, part of a wider retreat from risk-laden assets across global markets, appears driven by the rapid appreciation of the risk-averse Japanese yen and turbulence in the U.S. bond market.

According to Velo Data, the annualized three-month futures premium on Binance, a leading cryptocurrency exchange, has slumped to 3.32%, marking its lowest point since April 2023. Similar declines in futures premiums have been observed on other prominent exchanges such as OKX and Deribit.

Simultaneously, futures on the regulated Chicago Mercantile Exchange (CME), favored by institutional investors, are now trading nearly at parity with spot prices. This parity signifies that the returns on the conventional cash and carry strategy, which involves taking a long position in the spot market or U.S.-listed ETFs while simultaneously shorting futures, are now less lucrative or on par with the yield on the 10-year U.S. Treasury note.

This once-favored strategy garnered considerable popularity among institutional investors in the first quarter when futures traded at a premium exceeding 20%, purportedly accounting for a significant portion of inflows into spot ETFs.

Key Takeaways:

• Bitcoin’s Steep Decline: BTC drops over 18% to $50K, the lowest since February 2024.
• Impact on Carry Trades: Narrowing gap between futures and spot prices diminishes the appeal of carry trades.
• Market Turbulence: Driven by a strong Japanese yen and U.S. bond market volatility.
• Futures Premium Drop: Binance’s annualized three-month futures premium falls to 3.32%, the lowest since April 2023.
• Institutional Preferences: CME futures now trading at near parity with spot prices, affecting cash and carry strategy returns.

As market conditions continue to evolve, traders and investors must remain vigilant, adapting their strategies to navigate the shifting landscape of cryptocurrency and global financial markets.