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Crypto carry

Author

Listed:
  • Maik Schmeling
  • Andreas Schrimpf
  • Karamfil Todorov

Abstract

We document that the carry of crypto futures, i.e. the difference between futures and spot prices, can become very large (up to 60% p.a.) and varies strongly over time. This behavior is most consistent with the existence of a highly volatile crypto convenience yield that stems from two main forces: (i) trend-chasing and attention by smaller investors seeking leveraged upside exposure to crypto assets in boom periods, and (ii) the relative scarcity of "arbitrage" capital taking the other side through a cash and carry position. Engaging in the latter is risky due to spikes in margins and liquidations amid drawdowns. The interplay between these two forces, and the involved high leverage, may help explain why severe market crashes are a frequent feature of crypto markets.

Suggested Citation

  • Maik Schmeling & Andreas Schrimpf & Karamfil Todorov, 2023. "Crypto carry," BIS Working Papers 1087, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1087
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    References listed on IDEAS

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    More about this item

    Keywords

    Crypto; Carry; Futures basis; Crash risk; Bitcoin; Ethereum;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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