Coinbase Asset Management is rolling out a new fund for institutions to receive a yield on their bitcoin (BTC) holdings.
Opening on May 1 for non-US institutional investors, the Coinbase Bitcoin Yield Fund aims to deliver a 4% to 8% annualized net return, according to a press release on Monday.
Among those backing the fund, Abu Dhabi-based Aspen Digital said yield will initially be generated through basis trading, with lending and options strategies to be used in the future.
The so-called bitcoin basis trade involves capitalizing on the spread between futures and spot markets. It became popular at the tail end of 2024 as hedge funds notched a record high of $14.2 billion in BTC short positions, whilst simultaneously buying spot bitcoin ETF shares.
The strategy produces yields depending on the spread between both markets, but isn’t immune to risk. For instance, if an entity was short $1 billion on a BTC futures product and the price of BTC was to wildly surge, that entity would need to keep adding margin to avoid liquidation.
Also, as the trade becomes more crowded, the spread and subsequent yield could become very thin. This has already led to a number of hedge funds exiting the trade early this year, with the short figure on Chicago Mercantile Exchange now standing at $8.4 billion, down from $14.2 billion four months prior.
Coinbase’s new product stirs memories of former crypto lender BlockFi’s yield platform, which opened in 2019 but ultimately failed alongside crashing prices in 2022.
BlockFi’s fund, however, differed from Coinbase’s latest product in that it generated its yield through lending, rather than a lower-risk basis trade.