March 27, 2024
Bitcoin News

Bitcoin’s Soaring Rally Sparks Opportunities for Arbitrageurs

The Bitcoin freight train shows no signs of slowing down, propelling the cryptocurrency to new heights. On Tuesday, Bitcoin (BTC) surged to nearly $57,000, reaching its highest level since late 2021 and marking a year-to-date gain of 32%, according to CoinDesk data. The broader market, represented by the CoinDesk 20 index, also saw a notable uptick, trading nearly 6% higher.

Amidst this bullish momentum, the annualized funding rate in Bitcoin perpetual futures listed on Binance has surpassed 100% for the first time in at least a year, as reported by data sources Velo Data and CoinGlass. Funding rates on Bybit and Deribit also experienced substantial increases, reaching 95% and 56%, respectively.

Perpetual or futures, characterized by their lack of expiry, utilize funding rates to align prices with spot prices. A positive funding rate indicates that perpetuals are trading at a premium to spot prices, requiring traders with long positions to pay fees to those with short positions. This surge in funding rates suggests a prevailing bullish sentiment in the market, particularly as traders anticipate continued inflows into U.S.-based spot ETFs.

Markus Thielen, founder of 10X Research, commented on the situation, noting that “Traders are becoming increasingly confident that the halving and the ETF inflows will be bullish.” Thielen emphasized that the rising funding rates present an attractive opportunity for non-directional traders or arbitrageurs, especially as open interest reaches $14.4 billion.

Explaining the potential for arbitrage, Thielen highlighted that “The perp funding rates are exploding,” creating a scenario where perpetuals trade at a significant premium to spot prices. This opens the door for arbitrageurs to short perpetual futures and simultaneously buy the cryptocurrency in the spot market, allowing them to profit from the premium while mitigating price volatility risks. As Bitcoin’s rally continues, the opportunities for arbitrage in the cryptocurrency market are becoming increasingly enticing.

Image by fabrikasimf on Freepik

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