Home Business Insights & Advice CME BTC futures trade at a discount, but it’s good/bad

CME BTC futures trade at a discount, but it’s good/bad

by Sarah Dunsby
16th Jan 23 2:39 pm

November 9, CME Group has been selling Bitcoin futures at prices lower than the spot price of Bitcoin on regular exchanges. Backwardation is the technical term for what is happening here. Even though it shows that the market structure is bearish, it could be hurt by several things quickly. Visit Profit Builder if you want to trade cryptocurrencies or invest in them.

For these CME fixed-month contracts, a small premium is usually paid. The sellers want more money if the settlement is put off for longer. Because of this, in a healthy market, futures should trade at a premium of 0.5% to 2%. “Contango” is the word for this kind of thing.

But if a big trader sells a lot of futures contracts, the prices of futures contracts on the market will change for a short time. On the other hand, fixed-calendar futures differ from contracts that last forever because they don’t have a funding rate. This means that their price may vary from the price on spot markets.

People kept selling, so the price of Bitcoin futures went down by 5%.

If there are a lot of shorts, the futures contract price for two months will drop by at least 2%. (sellers). One-month CME futures have been trading close to their fair value, giving spot markets either a 0.5 percent discount or a 0.5 percent premium. People thought that when the two groups worked together, they were one of the most prominent players in the cryptocurrency market. Every cryptocurrency market was sure to be shaken up when they broke up.

The harmful effect was even worse because there were no market makers

As market makers try to lower their risks and look at counterparty risks, there will be too much demand for longs and shorts at CME. This will throw off the future premium indicator. This will happen because there will be too many longs and shorts at CME in the future.

The most important sign of a broken and gloomy derivatives market is backwardation in contracts. At this time, contracts are made for the future. This kind of movement can happen when big players use derivatives to short the market or when there are orders to sell. This is especially true if the particular circumstances make people more interested in the topic, which could lead to new jobs.

Institutional investors are still just as interested in CME futures as before

On November 10, the number of open Bitcoin futures contracts traded on the CME reached a new high that hadn’t been seen in the four months before. These numbers show how many people buy and sell things using derivatives contracts from the CME.

Open interest for Bitcoin futures in US dollars on the CME. Everything began with coin glass.

Remember that Bitcoin was worth $5.45 billion on October 26, 2021, but the price was close to $60,000. Since this is the case, the 1.67 billion dollars in open interest in CME futures on November 10, 2022 is still a lot of contracts.

Traders often look at the open interest to confirm trends or, at the very least, to see how hungry institutional investors are. For example, a growing number of open futures contracts is often seen as more money coming into the market, no matter how biased the person is. Even if the number of open futures contracts stays the same, this is still true.

Even though some people don’t believe in cryptocurrencies, the above open interest chart is more proof. This information shows that smart investors who bought Bitcoin futures didn’t lose any money.

There is no question that there is a demand for shorts, but the biggest problem with the market right now is that the market makers can’t meet that demand.


The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision. London Loves Business bears no responsibility for any gains or losses.

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