Archive / Crypto & DeFi / E871
Lending-rate spikes do not pay a short after costs
A short of the coin for 24 hours after a spike in its spot-margin lending rate earned +62.2 bp before costs and +3.4 bp after them (interval -33.7 to +37.0 bp), against a required +30 bp.
Some holders cannot or will not short a coin directly, so they borrow it on spot margin and sell. People argue that a sudden jump in the lending rate exposes this demand and that the coin then underperforms. We found 1,383 such jumps in 123 coins and shorted each coin's perpetual for 24 hours, hedged against Bitcoin. Before costs the short made +62.2 bp per trade. Costs (gross minus net, funding included, about 59 bp) left +3.4 bp, with an interval from -33.7 to +37.0 bp that includes zero. The test required +30 bp.
A sudden spike in a coin's spot-margin lending rate reveals new short demand, so the coin underperforms over the next day.
Why people believe it
People argue that holders who cannot or will not short the perpetual (locked or vesting tokens, airdrop recipients, coins whose funding is capped) borrow the coin on spot margin and sell it. The lending rate clears every hour, while the passive supply of lendable coins adjusts slowly, so a spike should show sudden demand to sell or hedge before the price has moved.
Why it would persist The argument, as stated before testing
Most affected coins are small and expensive to trade, and the lending rate is not shown in ordinary price feeds, so few traders would watch it.
We downloaded the hourly lending rate of each coin and flagged the hours in which it jumped far above its own 30-day norm and to at least 20% a year. Two hours after each flagged hour (to be sure the rate was already known) we simulated a short of that coin's perpetual for 24 hours, hedged against Bitcoin, and charged realistic costs. We also ran the same short one week earlier and in ordinary hours of the same coin, to see what shorting these coins earns in general.
At least 200 events from at least 40 coins; mean net at least +30 bp; coin-clustered 95% interval lower bound above 0; median above 0; both halves above 0; controls below half the event mean.
Mean net below +10 bp, or the interval includes 0.
Per-coin cost model: 5 bp fee plus a modelled half-spread and impact at a $5,000 trade, charged on both sides, plus 5.5 bp per side on the Bitcoin hedge, scaled by beta. Funding received by the short is added. Prices and funding come from the other venue and proxy the lending venue's perpetual.
The same coin and clock hour 7 days earlier; matched non-spike hours (same coin, |z| below 1, same hour of day, 3 per event); long direction to show the sign; a descriptive daily cross-sectional rank correlation of z with the next 24-hour return.
Mean net of +3.4 bp is below the +10 bp kill line and the coin-clustered interval (-33.7 to +37.0 bp) includes 0.
- Signed so that + means the short made money. Over 24 hours the hedged short earned +62.2 bp per trade gross and +3.4 bp net after costs of about 59 bp (gross minus net, funding included).
- The coin-clustered 95% interval for the net mean is -33.7 to +37.0 bp. The median trade earned +38.5 bp and 54.6% of trades were profitable, but the worst trade lost -6,425 bp; the worst 14 trades (1%) average -3,285 bp. The net interval includes zero, and the few worst trades outweigh the typical one.
- By period the net mean was not stable: -37.5 bp in the first half and +44.2 bp in the second (691 and 692 events), so the halves disagree and neither is evidence; by year -6.1 bp in 2024 (40 events), -22.6 bp in 2025 (326) and +12.1 bp in 2026 (1,017).
- A 4-hour hold earned -27.7 bp net, and the long side over 24 hours -88.3 bp.
- The pre-registered control condition (the 7-day-earlier and 3-per-event matched controls below half the event mean) did not discriminate, because both controls were negative in the same window.
- The daily cross-sectional rank correlation between the rate z-score and the next 24-hour return was -0.006 (t = -0.8).
Net mean sits between the kill line and the pass line
Mean net return of the 24-hour hedged short after a lending-rate spike, with its 95% coin-clustered interval. The mean (+3.4 bp) is below the +10 bp kill line and the +30 bp pass line, and the interval runs from -33.7 to +37.0 bp, so zero is inside it.
Chart data (bp)
| Mean | 95% low | 95% high | |
|---|---|---|---|
| Short after a spike, net (1,383 events) | 3.4 | -33.7 | 37 |
The net mean changes sign across periods
Net mean per trade by year and by half of the sample (events in brackets). Halves are -37.5 and +44.2 bp, years -6.1, -22.6 and +12.1 bp: no consistent sign.
Chart data (bp)
| Short after a spike, net | |
|---|---|
| 2024 (40) | -6.1 |
| 2025 (326) | -22.6 |
| 2026 (1,017) | 12.1 |
| First half (691) | -37.5 |
| Second half (692) | 44.2 |
A positive median, a mean pulled down by the tail
Number of 24-hour short trades by net return in bp. The median trade earned +38.5 bp, but the long left tail (the worst trade lost -6,425 bp) pulls the mean to +3.4 bp.
Chart data (number of trades)
| Bin | Short after a spike, net (count) |
|---|---|
| < -800 | 76 |
| -800..-400 | 116 |
| -400..-200 | 150 |
| -200..-100 | 136 |
| -100..-50 | 63 |
| -50..0 | 87 |
| 0..50 | 82 |
| 50..100 | 78 |
| 100..200 | 150 |
| 200..400 | 211 |
| 400..800 | 176 |
| > 800 | 58 |
Why it failed Interpretation · not established
The gross return of +62.2 bp is almost the same size as the costs of about 59 bp, because most of the coins are small and expensive to trade, so the net is close to zero. The spread of single trades is also large (single-trade standard deviation about 600 bp), so the interval is wide and the sign of the net mean flipped between periods; this sample could not have detected an effect much below 80 bp.
Lesson
When gross return and round-trip cost are the same size, the net result is decided by the cost model and is easily moved by one or two periods. An average over events should be read together with its cost, its median against its mean, and its behaviour across periods: here the median was +38.5 bp while the mean was +3.4 bp, and the periods disagreed on sign.
Scope of this result
Covers the hourly market lending rate of one large crypto derivatives venue, 123 coins with a perpetual on two venues, one spike definition, a 2-hour lag, a 24-hour hold and a Bitcoin-beta hedge, 2024-06 to 2026-10 for the events. Prices and funding are from a different venue than the lending rates, and the lending data carry no amounts.
A rejected experiment applies to the tested conditions and does not prove an idea can never work. bp = basis point, 0.01%.
1. Test design
Pre-registeredDataUniverseSignalExecutionCostsControlsSample splitPass criterionKill criterionPower2. Result
ObservationsInstrumentsNet mean95% intervalMedianWorstFinding 1Finding 2Finding 3Finding 4Finding 5Finding 63. Interpretation
Why it failedLessonScope4. Reproducibility
StepsGrade