This article first appeared on GuruFocus.
A notable recalibration is taking shape in crypto derivatives as institutional investors reassess one of the market’s most dependable yield strategies. Market participants are increasingly signaling that the Bitcoin (BTC-USD) cash-and-carry trade long spot exposure paired with short futures is losing its appeal as arbitrage spreads compress. After spot Bitcoin ETFs launched in early 2024, CME emerged as the primary venue for these trades, but open interest in CME Bitcoin futures has now slipped below Binance’s for the first time since 2023, a development that could point to shifting participation rather than waning interest in crypto itself.
In the months following ETF approvals, the strategy attracted billions in capital as annualized returns frequently reached double-digit levels, drawing funds focused purely on yield. That same influx appears to have narrowed the opportunity. One-month annualized basis yields are now hovering around 5%, among the lowest levels in years, according to Amberdata, down sharply from roughly 17% at this time last year and close to the threshold set by funding and execution costs. CME Bitcoin futures open interest has fallen below $10 billion from peaks above $21 billion, while Binance’s open interest has remained near $11 billion, a divergence that market participants attribute mainly to reduced activity from hedge funds and large US accounts after prices peaked in October.
The shift is unfolding against a backdrop of broader market maturation. Perpetual futures on crypto exchanges continue to dominate volumes, while CME has introduced longer-dated and smaller-sized contracts that expand institutional access but offer less incentive for classic carry trades in a low-basis environment. Even with Federal Reserve rate cuts easing funding costs, borrowing demand remains softer, DeFi yields are low, and traders appear to be favoring options and hedging strategies over outright leverage. Some market participants describe this phase as a tactical reset, suggesting institutions are diversifying beyond Bitcoin into assets such as Ether, XRP, and Solana as regulatory clarity improves, while arbitrage-focused firms may increasingly look toward more complex strategies as near-riskless carry returns fade.