The BIS cranks out some hardcore economics that explains large-scale market behavior.
) spot and futures prices — and its effect on crypto investment markets. The complex paper sheds light on the behavior of crypto investors, particularly smaller investors, in relation to boom and bust cycles.the results of “going long in the spot market, while selling forward the same amount forward via a futures contract.” The paper bases its findings on “stylized facts” based on a variety of exchanges over time.
Very little of the carry size — about 3% — resulted from differences between interest rates on crypto and fiat or variations among exchanges, which may be crypto-native, like Binance and OKX, or regulated like the Chicago Mercantile Exchange . The major factor was the convenience yield of holding futures:
“Crypto carry is large , strongly time-varying, and is most compatible with the existence of a highly volatile crypto futures convenience yield, i.e. investors are willing to pay more for the convenience of a levered futures contract relative to buying spot crypto.” Rising crypto carry was found, based on the evidence of traders on the CME, to be associated with “a rise in net long positions by ‘nonreportable’ traders,” such as “family offices, proprietary trading shops that run commodity trend-following strategies, and/or wealthy individuals.”Those buyers take levered futures positions “when there are strong price trends and heightened media attention.
Smaller leveraged investors chasing the trend and the relative scarcity of arbitrage capital are the two main reasons for the large “crypto carry” of up to 60% in
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