Market Analysis Report (23 May 2022)

Institutional demand to borrow cryptoassets has been waning, forcing high-yield crypto accounts to slash the returns being offered to investors keeping their funds with them.

Crypto lenders take deposited funds and lend them to institutional investors, returning most of the yield to customers.

These companies are now cutting the returns they pay to clients over lower borrowing demand, to the point that accounts that offered up to 6.25% a year on Bitcoin deposits now offer between 1% and 3%.

Demand is reportedly dropping for a number of reasons, including the crypto market being in a state of contango, where the price of futures contracts is above the current spot price. This scenario allows traders to profit from buying spot BTC while taking a short position through futures contracts.

Moreover, crypto lender Ledn has revealed it has been seeing fewer arbitrage opportunities across exchanges, meaning demand from market makers is dropping. Per the firm, the average spread on a $1 million buy order for BTC on Coinbase and FTX halved over the last 3 months.