Crypto arbitrage has lost its appeal as a profit model, BitMEX finds

An arbitrage strategy that capitalizes on the price difference between spot crypto assets and perpetual futures is no longer an attractive means of generating profit, according to an annual report from BitMEX. The report noted that the strategy, which involves buying spot while simultaneously selling perpetual futures to earn the funding rate differential, was once popular as a risk-free way to secure returns while avoiding price volatility. However, BitMEX explained that as the entire market, beginning with projects like Ethena (ENA), adopted the same strategy, funding yields plummeted. A flood of billions of dollars in automated hedge orders saturated the market, causing the volume of short positions to overwhelm demand from long positions and collapsing the funding rate. The report pointed out that by the middle of last year, yields from this strategy had fallen below 4%—a level lower than U.S. Treasury yields and a stark contrast to the 25% returns seen in past bull markets. The firm concluded that as the industry universally adopted the strategy, the arbitrage opportunity effectively eliminated itself.