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185381 https://hdl.handle.net/2286/R.2.N.185381 http://rightsstatements.org/vocab/InC/1.0/ http://creativecommons.org/licenses/by-nc-sa/4.0 2023-05 Scaramella, Zachary Simonson, Mark Wong, Kelvin Barrett, The Honors College Department of Finance School of Accountancy Text <p>As someone who is fascinated with the Cryptocurrency market, I felt that it only made sense to try and share my fascination with the rest of the college via the submission of this paper. However, many will just simply be uninterested in the topic all together, referring to the countless scams and scandals that have occurred throughout the history of the cryptocurrency market or have otherwise grown tired of the countless esoteric financial products that can found in the equity markets. However, I would like to spoil it a bit and mention the fact that this actually relates to arbitrage, and who doesn’t love arbitrage! Perpetual futures contracts are a new, novel, and popular cryptocurrency derivative that came onto the market in 2016. It is a perpetual future that deepens the market and removes basis risk for cross hedgers by trading on a single contract that is tethered to the underlying asset. The first attempt at creating such a derivative first occurred in the 1950s in the form of Index Participation contracts, then returned in the 1980s in Hong Kong’s gold market as Undated Futures. Shiller then released a paper on pricing perpetual claims that was then repurposed as the tethering mechanism by BitMEX in 2016, when the first iteration of the perpetual futures contract was released onto the market. Perpetual futures contacts were built with features to incentivize arbitrage, including a funding rate, which is a tethering mechanism which encourages arbitrage trading to keep the price of the contract in line with the underlying asset. This paper then demonstrates how an arbitrage trading strategy can be implemented based on a real arbitrage opportunity that existed on the Binance trading interface.</p> Arbitrage Perpetual Futures Contracts PERPs Crypto Bitcoin Bitmex Shiller Gehr Perpetual Futures Contracts and Arbitrage Trading Strategies