Crypto Firms Rake in Bitcoin Funding Rates Without Predicting Price

Crypto trading firms are profiting from Bitcoin's recent price surge without having to predict where prices will go next. The strategy, known as a cash-and-carry or basis trade, involves holding a spot crypto position while simultaneously shorting an equivalent amount via perpetual futures.

This allows traders to capture the funding rate - a periodic payment that longs must pay to shorts when the market is bullish - without being exposed to price movements. Bitcoin's annualized perpetual funding rate has been high, reaching 6.7% on August 24 and 8.7% in the past week.

The trade had largely dried up over the preceding months due to negative or compressed funding rates. However, this month's surge changed that equation overnight as leveraged short sellers were squeezed out by rising prices, flipping funding firmly positive.