Federal Reserve Rate Cut Could Spark a Revival in Bitcoin’s Basis Trade

The big question for bitcoin (BTC) is whether the basis trade, an attempt to profit from the difference between the spot price and the futures market, will return if the Federal Reserve cuts interest rates on Sept. 17. There's a 90% chance the Federal Open Markets Committee will cut the federal funds target rate by 25 basis points from its current 4.25%-4.50% range, according to the CME FedWatch tool . A shift toward easier policy could spark renewed demand for leverage, pushing futures premiums higher and breathing life back into a trade that has remained subdued throughout ￰0￱ basis trade involves buying bitcoin in the spot market or through an exchange-traded fund (ETF) while selling futures (or vice versa) to profit from the price ￰1￱ goal is to capture the spread as it narrows toward expiry, while limiting exposure to bitcoin’s price ￰2￱ fed funds still just above 4%, an 8% basis — the annualized return on the basis trade — may not look attractive until rate cuts begin to ￰3￱ are likely to want lower rates to incentivize them to go into the basis trade rather than just holding ￰4￱ CME, bitcoin futures open interest has slumped from more than 212,000 BTC at the start of the year to around 130,000 BTC, according to Glassnode ￰5￱ is roughly the level seen when spot bitcoin ETFs launched in January ￰6￱ annualized basis has stayed below 10% all year, according to Velo data , a striking contrast with the 20% seen toward the end of last ￰7￱ weakness reflects both market and macro forces: tighter funding conditions, ETF inflows slowing after 2024’s boom and a rotation of risk appetite out of bitcoin.

Bitcoin’s compressed trading range has reinforced the ￰8￱ volatility, a gauge of expected price swings, is at just 40 after hitting a record low of 35 last week, Glassnode data ￰9￱ volatility suppressed and institutional leverage light, futures premiums have remained ￰10￱ the Fed cuts rates, liquidity conditions could ease, boosting demand for risk ￰11￱ in turn may lift CME futures open interest and revive the basis trade after a year of stagnation.