CME Bitcoin Futures Premium Surges, Market Anticipates Approval of Spot Bitcoin ETF
Summary:
The Bitcoin futures on Chicago Mercantile Exchange (CME) surpassed the spot markets by $1,600, trading at $47,040 in the early hours of January 2. This unexpected rise has led traders to question whether it indicates an upcoming Bitcoin price rally or if it's merely a CME exclusive phenomenon. This upturn may be due to institutional investors anticipating regulatory approval of a spot Bitcoin ETF. Notably, futures contracts generally carry a 5%-10% basis rate due to their longer settlement periods. The CME Bitcoin futures premium surged to $900, the highest in over two years, in November 2023. While the broader market remains optimistic, the CME futures resulting spike in premiums does not necessarily indicate a universally bullish market sentiment.
Bitcoin futures on the Chicago Mercantile Exchange (CME) recorded a trading price of $47,040 in the early hours of January 2nd, a value $1,600 greater than in spot markets. The sudden spike has prompted traders to wonder if it's indicative of a forthcoming Bitcoin price surge or just a phenomena isolated to CME futures. The uptick might be the result of large-scale investors anticipating the green light for a spot Bitcoin ETF, a decision that's yet to be given. Veteran analysts from Bloomberg believe there is a 90% chance that the U.S. Securities and Exchange Commission (SEC) will approve, contributing to the current hopeful outlook.
In robust markets, monthly futures contracts generally carry a 5% to 10% basis rate due to extended settlement periods. This phenomenon, known as contango, is a common occurrence, not just in cryptocurrency derivatives. From January to November 2023, CME Bitcoin futures exhibited a comparably smaller premium compared to BTC spot markets, with top intraday amounts hardly surpassing $350, equivalent to an annualized rate of 14%.
However, this pattern shifted on November 24, 2023, when CME Bitcoin futures premium skyrocketed to $900 - the most in over two years. Interestingly, the value of Bitcoin had already shot up 41% to $37,750 in the preceding 40 days. Fast forward to December 6, 2023, and the futures premium dipped to $530, even as Bitcoin's price climbed to $43,800. Clearly, investors who maintained their positions for a fortnight were rewarded.
On January 2nd, $47,095 became the highest intraday price for Bitcoin futures due to an unanticipated CME surge. Social media user @DumpWatcher noted that the development transpired before the regular U.S. stock markets commenced operations, hinting at a potential downtime. Conversely, 4,180 BTC futures contracts, equivalent to $945 million, were traded in the initial trading hours of 2024. But the $1,600 premium, representing an annualized rate of 53%, dropped to $500 later in the day.
Although it might be tempting, it's difficult to link the premium to stop-loss orders from leveraged shorts, considering Bitcoin's price rose only by 4.6% during the CME futures market's holiday break from December 29, 2023. A key question to contemplate is whether the ups and downs were confined to CME.
Data from Binance, Bybit, OKX, Deribit, and other crypto exchanges depicted a 32% annualized BTC futures premium on December 2, 2023, the highest in over two years. Yet, it didn't match CME's actions, indicating the buying frenzy wasn't propagated throughout the wider market. Such discrepancies are not rare and usually stem from differences in client portfolios and the 40% to 50% margin demanded by CME, as opposed to crypto exchanges offering up to 100x leverage.
To gain better insight into market sentiments, it's useful to scrutinize Bitcoin options markets. A 25% delta skew can verify if professional traders are adopting a bearish stance. Typically, episodes of excitement feature a -7% skew with put (sell) options trading at a lower rate compared to similar call (buy) options.
From December 6, 2023, the BTC options market has remained rather neutral in terms of pricing put and call options, and the rally to $45,910 on January 2, 2024 was no exception. This statistic contravenes the Bitcoin futures market trend, challenging the argument that institutional investors might have privileged information about the approval of the spot ETF.
To conclude, while optimistic, the surge in CME futures premiums does not necessarily signify a wider bullish market outlook - particularly when considering Bitcoin's price has peaked since April 2022. As always, potential investors and traders should undertake comprehensive research before making any decisions.
Published At
1/3/2024 12:30:21 AM
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