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Home Tech Crypto Structural Issues May Be Causing BitMEX’s Low Bitcoin 'Cash and Carry' Returns

Structural Issues May Be Causing BitMEX’s Low Bitcoin ‘Cash and Carry’ Returns

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Summary (IA Generated)

BitMEX may be one of the largest crypto derivatives platforms, but it offers the lowest return on bitcoin “cash and carry” trades.

71% annualized, half of what rival exchanges like Binance, FTX and Deribit are offering, according to data source Skew.

Cash and carry arbitrage involves buying an asset in the spot market against a sell position in the futures market when the latter is trading at a premium to the spot price.

Bitcoin Futures Annualized Rolling 3-Month Basis (Binance, FTX, BitMEX and Deribit)Source: Skew.

“We believe that the difference in the BitMEX premium relates to their single collateral offering,” Patrick Heusser, senior cryptocurrency trader at Zurich-based Crypto Broker AG, told CoinDesk in a Twitter chat.

That, in turn, leads to bigger price decline and more “long liquidations,” a forced unwinding of buy positions akin to what can happen in a margin call on traditional futures exchanges.

Assuming it was a closed ecosystem, the danger was that bitcoin’s price on the BitMEX platform could have gone to zero, resulting in a complete wipeout of collateral value and all open positions,” Heusser said.

Hence, traders are less aggressive in building long on BitMEX as compared to other exchanges like FTX, where they can pledge stablecoins and cryptocurrencies as collateral.

Therefore, the general pricing of those futures is slightly lower compared to the multi-collateral platforms,” said Heusser.

Binance, the leading global cryptocurrency exchange by trading volume, launched a cross-collateral program on its futures platform earlier this year.

The feature allows users to trade futures using crypto assets from their Binance Exchange Wallet as collateral, without having to sell any coins.

Deribit, the biggest exchange by options volume, also offers a single collateral mechanism like BitMEX.

Deribit Futures Annualized Rolling 3-Month BasisSource: SkewThat’s possibly due to differences in liquidation mechanisms.

On Deribit, positions are liquidated incrementally.

Further, BitMEX’s high trading volume and order book depth could be responsible for the low basis compared to Deribit.

As of Tuesday, BitMEX accounted for 14% of the global bitcoin futures trading volume of $16 billion, while Deribit contributed just 2%, according to data source Skew.

Further, at BitMEX, the average daily spread between buy and sell orders on bitcoin futures for $10 million quote size is currently 0.


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