Template-Type: ReDIF-Paper 1.0
Author-Name: Maik Schmeling
Author-X-Name-First: Maik
Author-X-Name-Last: Schmeling
Author-Name: Andreas Schrimpf
Author-X-Name-First: Andreas
Author-X-Name-Last: Schrimpf
Author-Name: Karamfil Todorov
Author-X-Name-First: Karamfil
Author-X-Name-Last: Todorov
Title: Crypto carry
Abstract: We analyze the dynamics of carry in crypto markets - the difference between futures and spot prices - and document that it can reach exceptionally high levels, sometimes exceeding 40% per annum, with significant variation over time. This phenomenon reflects a substantial and volatile inconvenience yield associated with holding spot cryptocurrencies relative to futures. We trace the large and volatile crypto carry to the interplay of two main forces: (i) demand from smaller, trend-chasing investors seeking leveraged exposure, and (ii) the limited deployment of arbitrage capital due to regulatory and margin frictions. Our findings highlight how structural limits to arbitrage - especially severe in the case of crypto - can amplify price inefficiencies across financial markets, offering lessons for understanding asset pricing and market behavior more generally.
Creation-Date: 2023-04
File-URL: https://www.bis.org/publ/work1087.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1087.htm
File-Format: text/html
Number: 1087
Keywords: crypto, carry, futures basis, bitcoin, ether
Classification-JEL: G12, G13, G15
Handle: RePEc:bis:biswps:1087