What to Know:
- CME bitcoin futures open interest has plummeted from over 212,000 BTC to 130,000 BTC this year, with the annualized basis remaining below 10%.
- A rate cut from the Federal Reserve in September may enhance liquidity and risk appetite, potentially leading to a revival in the basis trade.
The major question surrounding bitcoin is if the basis trade, an approach to profit from the difference between spot prices and futures, will reemerge following a Federal Reserve rate cut expected on September 17.
Data from the CME FedWatch tool suggests a 90% likelihood that the Federal Open Market Committee will reduce the federal funds target rate by 25 basis points from its current range of 4.25%-4.50%. A pivot to easier monetary policy could stoke renewed demand for leverage, prompting higher futures premiums and reviving a trade that has languished throughout 2025.
The basis trade consists of purchasing bitcoin either in the spot market or through an exchange-traded fund (ETF) while simultaneously selling futures contracts to benefit from the narrowing price difference. The goal is to capture the spread as it approaches expiry, thus limiting exposure to bitcoin’s price volatility.
With federal funds around 4%, an 8% basis — representing the annualized return of the basis trade — may not entice investors until rate cuts accelerate. Investors are expected to seek lower rates as an incentive to engage in the basis trade rather than merely holding cash.
Currently, on the CME, bitcoin futures open interest has fallen dramatically from over 212,000 BTC at the year’s start down to approximately 130,000 BTC, as per Glassnode data. This aligns closely with levels seen during the launch of spot bitcoin ETFs in January 2024.
The annualized basis has remained below 10% all year, according to Velo data, in stark contrast to the 20% recorded late last year. This decline reflects both market dynamics and macroeconomic forces: tighter funding conditions, reduced ETF inflows following a 2024 boom, and a migration of risk appetite out of bitcoin.
Bitcoin has been trading within a compressed range, with implied volatility currently at just 40, following a record low of 35 last week, as per Glassnode measurements. With volatility subdued and institutional leverage minimal, futures premiums have encountered a ceiling.
A potential Fed rate cut could ease liquidity conditions, hence rekindling interest in risk assets. This would likely boost CME futures open interest and breathe life back into the basis trade after a year of stagnation.
