Anatomy of cryptocurrency perpetual futures returns

We have conducted a thorough analysis of returns on perpetual futures contracts within the cryptocurrency market. Our initial focus is the development of a cost-of-carry model precisely tailored to this asset class. This model accurately reflects the relationship between spot and futures prices, suggesting a positive convenience yield inherent in holding the underlying asset alongside near-zero storage costs. Additionally, we utilise a log-approximation to illustrate how returns on cryptocurrency perpetual futures are generated from the spot premium, log basis, and expected spreads between futures and spot prices over the contract’s “maturity”. Subsequently, we evaluated a comprehensive set of 134 return predictors, categorised as basis, momentum, volume, size, and volatility. Sorting by these predictors revealed 48 statistically significant futures returns (each exceeding the 5% significance level). Finally, we demonstrate that a twofactor model for perpetual futures, incorporating basis and price-volume factors, successfully explains all 48 of the identified strategies.