Key takeaways
- Coinbase launched its Coinbase Bitcoin Yield Fund (CBYF) on May 1, 2025.
- Exclusive to non-US institutional investors, CBYF targets a 4%-8% investment yield.
- CBYF generates yield through basis trading, rather than lending or staking methods.
- The fund prioritizes security by utilizing Coinbase’s institutional-grade custody solution.
Coinbase, one of the world’s largest cryptocurrency exchanges, launched its Coinbase Bitcoin Yield Fund (CBYF) on May 1, 2025. The fund allows institutional investors to earn yields on their Bitcoin (BTC) investments without moving their holdings out of secure custody.
This Coinbase Bitcoin Yield Fund beginner guide will cover what you need to know about the fund, including how it works, generates yield, risks and stands out from previous Bitcoin yield attempts.
If you’ve ever wondered how to earn yield on Bitcoin with Coinbase, this guide provides answers.
Coinbase Bitcoin yield fund explained
The CBYF, managed by Coinbase Asset Management (CAM), offers a monthly subscription service for investors to buy or sell positions within the fund. However, all buy or sell requests require a five-business-day advance notice.
Backed by various investors like digital asset manager Aspen Digital, the fund aims to offer a 4% to 8% annual return on investment. Notably, it will never convert Bitcoin into any altcoin or stablecoin.
Unlike traditional funds that move assets around to trade, CBYF operates primarily through Coinbase’s institutional-grade, cold storage custody systems. This approach ensures security in several ways:
- Prevents unnecessary transfers: Large transfers between wallets could be intercepted or lost for many reasons.
- Limits third-party involvement: Anything can happen in the crypto market. FTX went bankrupt just days after investors uncovered its scammy nature. By keeping assets in-house, CAM reduces exposure to potentially risky exchanges.
- Eliminates hot wallets: CAM executes trades through secure, third-party custodians that allow cold storage access.
- Risk mitigation: The CYBF’s investment strategy avoids high-risk avenues like Bitcoin loans, focusing instead on more consistent basis trading.
Did you know? Coinbase Custody, CBYF’s custody solution, maintains SOC 1 type 2 and SOC 2 type 2 compliance, making it one of the most secure crypto storage solutions.
How does Coinbase Bitcoin yield work?
Bitcoin doesn’t generate yield in the traditional sense. While many of its decentralized finance (DeFi)-focused competitors like Ethereum present multiple, built-in opportunities for yield generation through staking, using Bitcoin staking platforms requires extensive knowledge of layer-2 blockchain ecosystems.
While the everyday trader can always earn on Bitcoin through buying and holding it, yield farming via staking is a more consistent profit method for earning. Staking crypto is similar to keeping money in a traditional savings account with a bank. The bank uses your money for loans to other customers and you earn a share of the interest on those loans.
As a more approachable attempt to offer Bitcoin yield, CAM focuses on cash-and-carry arbitrage, a form of basis trading. Basis trading is a profit strategy in which investors take advantage of Bitcoin’s spread, or the price difference between the Bitcoin spot market and the futures market. Spot traders are buying Bitcoin in the moment, while futures traders enter a contract that says they’ll buy or sell Bitcoin for a certain price on a specific date.
Here’s an example:
- John buys one Bitcoin at $90,000. At the same time, he opens a short position to sell Bitcoin for $95,000 in three months.
- In three months, no matter Bitcoin’s price, John will sell at $95,000. Bitcoin could be at $85,000 or $100,000. Either way, he’ll have made $5,000 gross profit before transaction fees, including fees for buying the spot and opening the futures position, and likely fees for maintaining the futures position over time.
- That $5,000 profit is called the spread, or the basis. It’s the difference between the spot and the futures price, which forms John’s yield.
While it’s impossible to predict Bitcoin’s price movement with 100% accuracy, basis trading is lower risk because it relies on somewhat predictable price movements rather than trust in a borrower.
So, when an investor puts money into the new Coinbase yield fund, CAM uses those funds to initiate a basis trade. CAM earns a profit and shares it with investors as yield. Coinbase believes that avoiding “riskier high-interest Bitcoin loans” and focusing on a more predictable basis for trading will lower risk and appeal more to institutional investors.
If CBYF performs well, it may expand to more traditional lending or derivatives offerings. CYBF is attempting something that even the best crypto yield platforms have yet to try.
Did you know? CBYF is one of many attempts to offer Bitcoin yield products. Other Bitcoin passive income attempts include Bitcoin lending and liquidity pools.
The risks of basis trading
Basis trading has a lower risk than other crypto passive income options, but the process is far from risk-free.
Here are some common risks in basis trading:
- Market volatility: Bitcoin’s price can shift a few thousand dollars, either way, at any time. If Bitcoin jumps to $100,000 while CAM has a short contract out at $85,000, the exchange will require more collateral or liquidate the trade.
- Shrinking spread: Spread works best when fewer traders attempt to exploit it. Initiatives like the CBYF incentivize more traders to get involved, reducing the gap between Bitcoin’s spot price and the average futures prediction. A smaller spread will lower that 4%-8% targeted rate.
This isn’t to mention the regulatory and third-party platform risks.
For one, the CBYF isn’t open to US traders. Regulatory entities like the Securities and Exchange Commission have stood against Bitcoin products before, including Coinbase’s own Borrow offering, which enabled users to receive loans against their Bitcoin. Coinbase shut Borrow down in May 2023. The entity launched a similar product later that year, but only for institutional investors.
Instead, Coinbase is testing the CBYF internationally before bringing it into the United States.
Did you know? If Bitcoin’s price jumps too far (in either direction) while CAM holds a short position, the exchange must add collateral to avoid liquidation.
How is CBYF different from past Bitcoin yield attempts?
CBYF is built on the mistakes of previous Bitcoin yield attempts. One high-profile example was BlockFi, the now-defunct digital asset lending platform. BlockFi attempted a Bitcoin yield fund in 2019. BlockFi asked users to deposit Bitcoin into its platform, and would use that BTC for loans to institutions. Those loans would generate interest and BlockFi would pass that yield onto its users.
While this process worked for a time, state regulators came after BlockFi for selling unregistered securities. The SEC got involved and BlockFi had to settle by paying the SEC $50 million and stop allowing new accounts. It eventually went bankrupt.
Another notable example was the Celsius network, a crypto lending platform that worked like a bank. You would deposit funds, it would create loans for retail and institutional borrowers and you’d earn interest on the repayments. However, Celsius didn’t require a credit check for borrowers. It also secretly invested user funds in DeFi platforms, among other high-risk opportunities. This haphazard approach drove the company bankrupt and its CEO was sentenced to 12 years in prison for fraud.
Unlike BlockFi and Celsius, CBYF avoids direct lending and combines tried market strategies with institutional security methods.
The Coinbase crypto yield fund is one of the first major institutional attempts to generate Bitcoin yield while operating within Bitcoin’s limitations. It’s not forcing Bitcoin into a DeFi scheme it’s not built to support or relying on loans that a customer could easily default on, but working with existing trading methods to provide interest.
CBYF is not open to US investors or everyday traders, but for large entities looking to earn Bitcoin yield while minimizing risk, the Bitcoin yield fund Coinbase has put together may be worth watching.
