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The Crypto Carry Trade∗Research Paper • August 28th, 2023
The primary derivative contract on cryptocurrency exchanges is the perpetual futures contract. These contracts are denominated in either Tether (dollar) or coin (cryp- tocurrency). We study the empirical properties for 18 cryptocurrencies (36 contracts). We define a strategy, “crypto carry trade” that is short perpetual futures and long spot market and document that it has a high Sharpe ratio (e.g., 8.76 per year for Bit- coin Tether contract; 4.93 per year for coin). We interpret these results through the lens of a simple heterogeneous beliefs model to suggest that cryptocurrency exchange markets were facilitating leverage for long-side traders.
