Future Basis Rolling APY
Last updated
Last updated
Future Basis Rolling APY refers to the annualized yield derived from the price difference (basis) between futures contracts and spot prices. In the crypto market, futures contracts for most coins often trade at a premium (positive basis) due to the market's long-term bullish sentiment. This creates an arbitrage opportunity.
Arbitrage Opportunity Explained
For example:
Suppose a BTC futures contract has a 2% price premium (basis) compared to the spot price, and the contract expires in 30 days.
An arbitrageur can buy BTC in the spot market and simultaneously short the futures contract for the same amount, locking in the 2% price difference.
By holding both positions until the contract expires, the arbitrageur secures the 2% profit as the prices converge, with minimal risk.
The annualized yield from this trade is calculated as: 2%*(360/30)=24%
Why "Rolling"?
The term "Rolling" refers to the dynamic nature of this APY. As the contract approaches its expiration date, the basis narrows (converges with the spot price), and the APY changes. Traders often roll their positions to new contracts to maintain a steady yield.
Indicator of Market Sentiment
Just like the funding rate, Rolling APY reflects market sentiment. Higher premiums in futures contracts (and therefore higher APY) suggest optimism, while lower premiums signal fear or bearishness.
From historical data on BTC quarterly futures contracts, Rolling APY can be interpreted as follows:
Below 0%: Extreme pessimism (e.g., March 12, 2020, crash).
0-5%: Severe market fear.
5-10%: Neutral or calm market conditions.
10-15%: Slightly bullish sentiment.
15-20%: Market exuberance.
Above 20%: FOMO-driven speculation.
Default thresholds are typically set between 5% (neutral) and 20% (FOMO), but traders may adjust these based on backtesting and current market conditions.
Market Evolution and Data Sensitivity
Before BTC spot ETFs were approved, institutional investors had limited ways to gain exposure to Bitcoin, making futures contracts a key tool.
With the introduction of ETFs, arbitrage between ETFs and futures has become easier, compressing the basis and muting Rolling APY values.
Adjusting Standards
Historical thresholds may no longer apply due to these changes.
For instance, a Rolling APY of 15%-20% today may already indicate FOMO conditions, whereas it required 20%+ in the past.
Future Basis Rolling APY is a useful metric for understanding market sentiment and identifying arbitrage opportunities. However, as the market structure evolves, traders should regularly reevaluate thresholds and adapt their strategies accordingly. This indicator, when combined with others like funding rates, offers a clearer picture of the market’s state.
