CME Bitcoin Futures Capture $1.6K Premium As Spot BTC Price Trades Above $45K – Why?
Chicago Mercantile Exchange Bitcoin (BTC) futures were trading at $47,040 early on Jan. 2, $1,600 above spot markets. Traders are now questioning whether the spike is limited to CME futures and if it is indicative of an impending Bitcoin price rally.
Some analysts speculate that the premium was caused by institutional investors waiting for the spot bitcoin exchange-traded fund (ETF) to be approved by regulators, although that decision is still pending. Senior Bloomberg analysts estimate the odds of ETF approval by the US Securities and Exchange Commission (SEC) at 90%, explaining investors' recent optimism.
In healthy markets, monthly futures contracts typically trade at a base rate of 5% to 10% and carry longer settlement periods. This situation, known as contango, is not unique to cryptocurrency derivatives. It is worth noting that between January 2023 and November 2023, CME Bitcoin futures had a very low premium relative to BTC spot markets, with intraday highs not exceeding $350, equivalent to 14% per year.
This trend reversed on November 24, 2023, when the CME Bitcoin futures premium rose to $900, the highest in more than two years. Interestingly, the price of Bitcoin has risen by 41% to $37,750 in the previous 40 days. More importantly, the futures premium has dropped to $530 on December 6, 2023, even though the price of Bitcoin has risen to $43,800. Basically, investors' optimism has worked well for those in charge for at least two weeks on this issue.
This brings us to the most recent event on January 2nd, when CME's unexpected spike in Bitcoin futures resulted in a daily gain of $47,095.
Bitcoin futures are much higher than crypto exchanges on CME trading in the sharp contango market
CME trades higher in the afternoon as if someone knew something pic.twitter.com/l6Shwla2km
— Dump Watcher (@DumpWatcher) January 2, 2024
A post by user @DumpWatcher on X's social network said the move took place before the traditional US stock markets opened, indicating that there could be lower activity. However, this was not the case when 4,180 BTC futures contracts were traded with $945 million in the first trading hours of 2024. The bullishness didn't last long as the $1,600 premium, equivalent to a 53% annual rate, dropped to $500 throughout the day.
It's impossible to know if the premium was triggered by losing orders with bearish bets when the CME futures markets were closed from December 29, 2023, but unlikely, Bitcoin's price only rose 4.6%. The main question one must ask is whether the activity took place only on the CME.
Data from Binance, Bybit, OKX, Deribit and other crypto exchanges showed an annual BTC futures premium of 32% on December 2, 2023, the highest level in more than two years. However, it failed to match CME activity, suggesting that the buying momentum did not extend to the broader market. Such differences are rare and can be seen due to differences in customer profiles and the 40 to 50% margin required by CME, where crypto exchanges offer up to 100x leverage.
Related: Greyscale's Latest Spot Bitcoin ETF Update Omits Authorized Participants
A delta skew of 25% can prove that professional traders are biased, so one should watch Bitcoin options markets with better market sentiment. In short, bullish periods have a -7% skew when bullish periods trade at a discount relative to similar call (call) instruments.
Since December 6, 2023, the BTC options market has been relatively neutral in terms of pricing and call options, and the rally to $45,910 on January 2, 2020 was no exception. This information is separate from the Bitcoin futures markets and will cast doubt on the eventual adoption of spot ETFs as institutional traders have insider information.
Ultimately, the increase in CME futures premiums does not reflect broader market sentiment, which remains huge but not unusual, given that Bitcoin's price has been at its highest since April 2022.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
