Bitcoin Futures Basis and Funding Rate Remain Relatively Flat Amid Bullish Price Action
Report Summary:
Market Update: Bitcoin Futures Basis and Funding Rate Remain Relatively Flat
Trend: Upcoming Token Unlocks Increase Demand for Hedging
Trend: Ethena's Staking USDE Yields Stabilize
Market Update
In September, Bitcoin rose from slightly below $53,000 on September 6th to nearly $66,000 on September 27th, marking an approximate increase of 24.5%. Historically, such an uptick in the spot market has often led to a surge in Bitcoin perpetual contract funding rates due to increased leverage demand. As traders flock to long positions on perpetual contract exchanges, the price of perpetual contracts may deviate from the spot price, driving up the funding rate. We observed a similar phenomenon in March when Bitcoin reached an all-time high, but since then, the funding rate has remained relatively stable, sometimes even falling into negative territory. The September rally also saw a similar situation, with the funding rate hovering around 10%, which is generally considered a balanced level. The funding rate is typically an indicator of the cost of leverage in cryptocurrencies; when the funding rate soars, the cost of cash and stablecoins also rises.
Another key indicator of cryptocurrency capital costs is the basis trading of Bitcoin (BTC). Similar to the funding rate, the BTC basis may also surge during significant rallies in spot Bitcoin. This trading involves a strategy that is independent of market volatility, where traders purchase spot Bitcoin with cash and sell near-month futures contracts to capture the price difference. When the basis increases, short-term cash becomes more expensive because trading desks must weigh the opportunity cost of lending cash against the potential arbitrage gains. Throughout the rally, the basis remained relatively flat, with only a brief spike between September 24th and 25th, before returning to normal levels.
Overall, the September rally only led to a moderate increase in the overall capital costs of the cryptocurrency industry.
Key Trends...The upcoming token unlocks have increased the demand for hedging as financing rates have dropped significantly.
As October approaches, several major token unlocks are imminent, particularly for SUI, APTOS, and TIA. In anticipation of these events, venture capital funds, early investors, angel investors, and developers are exploring strategies to hedge risks and lock in prices before the influx of liquidity hits the market.
For instance, TIA is set for a substantial token unlock on October 30th, which will release 176.56 million tokens, accounting for 81.94% of its circulating supply. Of these, approximately 65.01 million tokens will be allocated to venture capital funds.
As the unlock date draws near, the demand for hedging continues to rise. This is reflected in the funding rate of TIA perpetual contracts, which has remained negative, sometimes even as low as -400%. This trend indicates that traders are willing to pay a premium to hedge their positions, especially when alternative off-chain hedging options are limited due to tight supply.
Ethena's staking USDe yields have stabilized, with funding rates remaining steady.
Ethena USDe is a market volatility-independent synthetic US dollar introduced earlier this year, complemented by staked USDe, a yield-generating "internet bond" based on funding and basis spread differences. As the market trades sideways, yields gradually return to normal levels.
sUSDe generates yields through ETH staking and short-term perpetual contract positions, with its yields peaking when Bitcoin reached an all-time high in March, with funding rates soaring to 70%. This meant that long positions had to pay a premium to short positions to maintain their positions, thereby driving the growth of sUSDe. Since then, the market has cooled, with ETH's funding rate falling below 10%.
Since March, sUSDe's yield has dropped from a peak close to 50% to just over 10% by the end of September.
As yields began to decline, the supply also decreased, falling from a peak of over $3.5 billion to just over $2.5 billion by the end of September. Interestingly, during this period, the proportion of staked USDe supply increased.