Coinbase Asset Management is set to introduce an innovative fund designed to provide institutions with the opportunity to earn yield on their Bitcoin (BTC) holdings. This new initiative, which opens on May 1 for non-U.S. institutional investors, aims to deliver an impressive annualized net return ranging from 4% to 8%, as highlighted in a recent press release.
Among the notable supporters of this fund is Aspen Digital, based in Abu Dhabi, indicating that the yield will initially be generated through basis trading, with plans to incorporate lending and options strategies in the future.
The basis trade in Bitcoin involves taking advantage of the price discrepancies between futures and spot markets. This strategy gained traction towards the end of 2024, particularly as hedge funds recorded a peak of $14.2 billion in BTC short positions, while simultaneously purchasing shares of spot Bitcoin ETFs.
Yield generation through this method relies on the spread between the two markets, but it does carry associated risks. For instance, if a trading entity holds a short position of $1 billion on BTC futures and Bitcoin’s price experiences a significant surge, the entity must continuously add margin to prevent liquidation.
Furthermore, as more entities engage in this strategy, the yield and spread could decrease significantly. This shift has already resulted in several hedge funds withdrawing from the trade earlier this year, with the short position on the Chicago Mercantile Exchange now reduced to $8.4 billion, a notable drop from the previous $14.2 billion.
Coinbase’s new initiative recalls the previous efforts of crypto lender BlockFi, which launched its yield platform in 2019 but ultimately collapsed alongside falling cryptocurrency prices in 2022. However, it is essential to differentiate Coinbase’s product from BlockFi’s offering, as the former generates yield through lower-risk basis trades instead of lending practices.
