Inflation in the USA rose to 7.9% according to the latest data. As part of the fight against inflation, the Fed increased interest rates by 25 basis points at the last FOMC meeting.
While the US interest rate rose to 0.5, the annual real loss for someone who puts their money at interest remains at -7.4%.
Real Yields in Crypto are Negative
Rising inflation in the US also reduces interest in Bitcoin arbitrage trading. Because professional traders heavily trade Bitcoin to earn a return on the difference between Bitcoin’s spot market price and its price in futures contracts, current inflation data has dwarfed the trade returns in this area.
Quarterly futures contracts are trading at a premium of around 3% on major exchanges like CME and Binance, according to data from Skew.
This means that a trader who buys Bitcoin on the spot market and sells futures contracts will earn an annual return of 3%. Given that the annual interest rate in the US is 7.9%, these traders’ net returns correspond to -4.9 per annum.
Evaluating the decline in these returns, market research analyst Vetle Lunde from Arcana Research said:
“Both nominal returns and real returns adjusted for inflation are currently quite low. After the extremely high and unsustainable returns last year, this decline is natural. “
The Picture Is Worse In Traditional Markets
While annual rates of return for Bitcoin traders have suffered a serious loss against inflation, the situation is no different for returns in traditional markets.
The net yield on the US quarterly bond is -7.5%, and the 10-year bond is -5.75%. According to these, the net return on Bitcoin can still attract investors.
Ebtikar from Split Capital said:
“Although arbitrage trading currently offers negative returns in crypto, negative returns are higher in non-crypto markets. This shows that billions of dollars will continue to enter crypto.”
Some experts think that interest in crypto is still high, but liquidity is spilling over into NFTs and altcoins.