Bitcoin enthusiasts are eyeing a potential revival of the basis trade, hinging on the Federal Reserve’s anticipated interest rate cut on September 17. The CME FedWatch tool suggests a 90% likelihood that the Federal Open Markets Committee will lower the federal funds rate by 25 basis points, sparking hopes for a resurgence in this specialized trading strategy.
The Mechanics of the Basis Trade
At its core, the basis trade involves a calculated dance between buying bitcoin on the spot market or via exchange-traded funds (ETFs) and selling futures. The aim? To profit from the gap between these prices as it narrows toward contract expiration. It’s a nuanced play, one that demands a keen eye on market dynamics to manage bitcoin’s notorious price volatility. As explored in our recent coverage of US ETFs now being a major source of Bitcoin spot trading volume, the role of ETFs in this strategy has grown significantly.
For much of 2025, though, this trade has been on ice. Futures premiums, the lifeblood of the basis trade, have languished. According to Velo data, the annualized basis has hovered below 10%, a stark contrast to the 20% highs seen late last year. The combination of macroeconomic forces and market-specific shifts has kept this trade subdued. Funding conditions have tightened, ETF inflows have cooled following their 2024 boom, and risk appetites have shifted away from bitcoin.
The Fed’s Influence and Market Sentiment
Here’s the catch: the Federal Reserve’s impending policy shift could breathe new life into this dormant strategy. If rates drop, liquidity conditions might ease, potentially reigniting demand for riskier assets like bitcoin. This, in turn, could lift CME futures open interest, which has already seen a slump—from over 212,000 BTC at the year’s start to roughly 130,000 BTC today, as per Glassnode data.
“The prospects of a rate cut are tantalizing,” says crypto analyst Jenna Marks. “It could be the catalyst needed to spark renewed interest in the basis trade, especially as investors look for higher returns in a lower rate environment.”
Despite these optimistic murmurs, caution remains. With fed funds still hovering above 4%, the 8% basis—representing the potential annualized return—doesn’t yet entice many investors, who prefer the safety of cash until rates fall further. It’s a delicate balance, as investors weigh the allure of the basis trade against prevailing market conditions. This follows a pattern observed in Bitcoin, Ether ETF flows hinting at an incoming altcoin bull run, where shifts in ETF activity signal broader market trends.
Volatility’s Role and Future Prospects
Volatility, or the lack thereof, has also played its part in this saga. Bitcoin’s trading range has been unusually tight, with implied volatility at a mere 40, after dipping to a record low of 35 last week. Such subdued volatility has capped futures premiums, further stifling the basis trade.
If the Fed’s rate cut materializes, it could alter this landscape dramatically. Easier monetary policy might encourage greater leverage, pushing futures premiums higher. Yet, this path is fraught with uncertainties. Will the Fed’s move be enough to rekindle investor appetite? And if so, how sustainable will the basis trade’s resurgence be amid broader economic shifts?
In the coming weeks, all eyes will be on the Fed’s decision and its ripple effects across the cryptocurrency market. The potential revival of the basis trade offers a tantalizing glimpse into how shifting macroeconomic policies can reignite once-lagging market strategies. But as with all things crypto, the only certainty is uncertainty—raising questions about whether this trend can continue and what it means for bitcoin’s future trajectory.
Source
This article is based on: Federal Reserve Rate Cut Could Spark a Revival in Bitcoin’s Basis Trade
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Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
