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A myth? Let’s see why CME’s Bitcoin futures expiration is irrelevant

August 27, 2020

Chicago Mercantile Exchange (CME) bitcoin futures and options contracts expire on the last Friday of each month. This leads traders to fear that the recent drop in BTC prices could trigger a weakening of the markets.

According to a September 2019 report by Arcane Research and Cointelegraph The price of BTC typically drops 2.3% before each monthly CME contract expires. Given the size of the next sale, it’s worth taking a moment to analyze and analyze new data assess whether the ghosts of the “CME crash” continue to scare the markets.

The aforementioned study regards “deliberate manipulation” as the culprit but other than that he found out 15 of the 20 months had negative returns in the 40 hours prior to the end of the CME.

Current data refute the theory

A myth? Let’s see why CME’s Bitcoin futures expiration is irrelevantA myth? Let’s see why CME’s Bitcoin futures expiration is irrelevant

Using the same methodology as in the 2019 study, we tried to determine if the theory was still true.

The study was conducted by comparing the average price 40 hours before each event with the previous 40 trading hours. This period is completely arbitrary, but is retained as a basis for comparison.

Bitcoin 40-hour change before the CME expires

Bitcoin price change 40 hours before the CME expires. Source: Tradingview and CoinTelegraph

The negative trend observed in the September 2019 analysis continued in the following months. As can be seen from the graph above, Bitcoin (BTC) saw a significant rally in November 2019, with gains of 4.4% before expiration.

No other month since the study began in January 2018 has delivered such a positive number. The previous surge came in September 2018 and was up 2.4% in the 40 hours leading up to the futures contracts.

The BTC halving could have changed the narrative

Bitcoin’s third halving took place in May 2020; Therefore, November 2019 was six months before the event. The average profitability of 40 hours over the past ten months is + 0.3%, and that includes the negative behavior of 5% in September.

One way to measure the impact of this event on investor expectations is Analyze the change in Bitcoin futures wallets at CME.

This data alone does not show whether investors were bullish or bearish at the time, but rather The growth in open interest indicates the entry of new investors or more significant positions.

Definitely, This could indicate that the halving had an impact on these price movements.

CME Bitcoin Futures Open Interest, USD conditions

Open interest in CME Bitcoin futures, expressed in USD. Source: Skew

Open interest in CME’s bitcoin futures increased 186%. from November 2019 to halving in May at $ 390 million.

This indicates that Institutional interest increased as the 40-hour variation indicator reversed its negative trend.

The latest data shows some CME Bitcoin futures of $ 658 million, as shown in the graphic above.

The gap was created in the correction on Monday

While The negative price volatility of $ 400 this week could be considered irrelevant. Given Bitcoin’s impressive implied volatility of 70% in 3 months, this has certainly eased the mood of professional investors.

The futures base measures the price of long-term contracts in relation to the current cash level (regular markets). Professional dealers tend to be more active than retailers on such instruments because of the handling of expiration dates.

These contracts generally trade on a small basis, which is an indication Sellers charge more money to keep sales going longer.

CME Bitcoin Futures Basis

CME Bitcoin Futures Base. Source: Tradingview and CoinTelegraph

CME’s Bitcoin futures base briefly touched bullish territory on August 26th, which has not happened since May 25th. This move is in stark contrast to late July and early August when the base hit the 2% level.

It seems premature to determine whether this was a trend reversal or a temporary correction as Bitcoin tested the $ 11,200 support level.

Futures contracts are usually extended

It’s important to remember Investors typically extend their futures positions in the final trading sessions. To hold a long position It is necessary to buy the September contract and sell the August contract to reduce the number of outstanding short-term contracts.

If these investors choose not to extend their positions, This would likely increase the likelihood of additional volatility during the expiry.

Bitcoin Futures Open Interest, contracts worth 5 BTC each

Bitcoin futures open interest, contracts worth 5 BTC each. Source: CME

The latest data from CME shows a total of 4,727 open contracts for August, Each contract includes 5 BTC for a total of $ 272 million. If the outstanding contracts are not reduced significantly in the next few days, this can lead to strong expiry pressure on Fridays.

At the moment, the specter of the CME decline looks more like a phenomenon from the past that has little to do with the current market situation.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trade movement involves risk. You should do your own research when making a decision.

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