We're happy to announce that we've published our inaugural 'Institutional Basis Trading Report.' The report analyzes the institutional basis trading landscape and strategies, as well as drivers behind the nearly 30% Ethereum (ETH) and Bitcoin (BTC) annualized basis observed towards the end of March 2024.
The report also presents a deep-dive into how:
Futures contracts are a key element in the cryptocurrency market, enabling buyers and sellers to profit from the difference between the entry and settlement price at maturity. The basis, which is the difference between the futures and spot price, is a fundamental component of these contracts;
Basis trading is a preferred strategy among institutional crypto traders, presenting opportunities for arbitrage and enabling traders to take advantage of price differentials, use leverage and effectively hedge their exposure; and
Annualized basis for Bitcoin and Ethereum began the year 2024 at over 20%. By mid-February, both cryptocurrencies experienced a significant increase in their annualized basis.
This resurgence directly impacted the trading volume of futures spreads, causing a substantial and sustained surge in activity, demonstrating increased interest in futures spreads trading. This trend marks a key shift in the trading dynamics of BTC and ETH.
In addition, the report features an in-depth analysis of basis trading strategies, with valuable insights and case studies from our institutional clients:
Harmonic Dealings, a leading trading infrastructure firm, shares their experience with basis trading in futures markets, and how it utilizes strategies to extract yields from the differences and changes in price between futures contracts and their respective underlyings.
ANB Investments, a global asset manager, offers insights into its successful implementation of strategies centered around basis trading, including 'Cash-and-Carry' and 'Perpetual Swap Funding Rate Arbitrage.' It highlights the benefits of execution enhancement via Nitro Spreads, a venue within our Liquid Marketplace for executing basis, futures spreads and funding rate arbitrage strategies.
Typhoon Trading, a cryptocurrency derivatives market maker, shares its expertise in providing liquidity for spread markets, enabling trading firms to generate yield, manage positions across expiration dates, or capitalize on interest rate perspectives. In the report, Typhoon Trading emphasizes the importance of executing each leg of the spread without incurring slippage or taking on excessive risk, which is made easier by the advent of tools such as our Nitro Spreads.
Our Global Chief Commercial Officer, Lennix Lai said: "Our 'Institutional Basis Trading Report' highlights the innovative strategies that some of our clients are using to navigate the cryptocurrency market. As a leading crypto exchange, we're continuously listening to our institutional users and enhancing our offerings to meet their needs, including developing innovative tools like Nitro Spreads, which is specifically designed for basis trading strategies and offers institutional traders enhanced capital efficiency."
We launched Nitro Spreads in July 2023 and has since achieved a number of trading volume milestones. In March 2024, Nitro Spreads recorded a monthly trading volume of nearly 5 billion USDT*. Since December 2023, we have recorded a month-over-month increase in Nitro Spreads executions, which peaked at nearly 500,000 in March 2024.
Click here to download the full report.
*Source: Laevitas (as of April 1, 2024)
