Author: Coremont– www.coremont.com
Search the internet for ‘cryptocurrency portfolio management’ and a wealth of well-meaning enthusiasts are cementing misconceptions about the appropriate valuation and risk treatment of digital assets.
By addressing a few of the more common misunderstandings in this article, Coremont hopes to help advance the evolution of cryptocurrency investments as an institutional asset class.
Why are implied crypto interest rates are negative?
Negative implied interest rates are consistent with Bitcoin Futures trading at a significant premium to spot. Explanations for this could be that market players do not have access to the spot market, or that achieving a leveraged position in Bitcoin spot is difficult given the large haircuts required when posting it as collateral. Futures may be the only way to access crypto for certain pools of capital (e.g. US regulated persons) and are considered safer given there is exposure without the security or data storage risks.
Is there an implied Bitcoin interest rate curve?
Yes. In fact, it is possible to calibrate an implied interest rate curve specific to every exchange that offers active futures strips for each currency. Multiple exchange-specific rate curves lead naturally to basis between curves, or Bitcoin and Ethereum BR01s (the value of a 1 basis point move of a spread on a portfolio).
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