Most of the large cryptocurrency exchanges offer what are known as Perpetual Future Contracts. These are far more fluid than the fixed variety from the CME because they are updated every eight hours with what is known as the funding rate.
The funding rate is essentially what it will cost you to borrow a specific asset for eight hours in the expectation that its value will rise in excess of that rate. You need to post collateral with the exchange in order to access funding, and they are called Perpetuals as the rates keep rolling over until you decide to close them.
The Perpetuals market is one way of creating leverage, enabling you to speculate with more crypto assets than you actually own by paying the funding rate for the privilege of borrowing them. The funding rate will naturally fluctuate in relation to the expectation within the market for the price to increase.
Similar to the contango approach already described, you can capture a premium by buying Bitcoin at spot price and selling a Perpetual contract to earn the funding rate from someone willing to borrow it. Whatever happens to the price you are collecting the Premium.
The funding rate for Binance as of May 4th, 2021 is 0.0764% for the current eight hour period. It will update once that expires, but do a crude extrapolation from that figure you can work out the premium you could capture from the Perpetual Funding rates for Bitcoin.
- 0.0764*3= 0.229% return per day
- Multiply by 30 for an average monthly return of 6.9%
This compares well with the contango approach above, but doesn’t account for the cost of depositing, buying, and opening/closing your short positions on the Perpetual short contracts.
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