Bitcoin

Bitcoin futures have a bigger impact on price than spot markets, according to a report by Wilshire Phoenix

A new report from the investment firm Wilshire Phoenix claims that the Chicago Mercantile Exchange (CME) cash settled bitcoin futures trading products affect the price of bitcoin, although they are not directly related to actual bitcoin (BTC).

“Wilshire Phoenix’s results show that CME’s bitcoin futures are more likely to contribute to pricing than their associated spot markets.” says the October 14 report from Wilshire Phoenix, adding:

“A leading futures market indicates a strong base of traders who can trade those markets for many reasons, such as confidence in the trading venue and lower latency.”

Pricing essentially refers to how each real bitcoin is valued on the market, what the current market price is, or what the spot price is. The Wilshire report essentially found that these CME products affect the price of BTC more than the actual BTC itself that is traded on traditional cryptocurrency exchanges.

Bitcoin futures have a bigger impact on price than spot markets, according to a report by Wilshire Phoenix
Bitcoin futures have a bigger impact on price than spot markets, according to a report by Wilshire Phoenix

The Bitcoin futures launched by CME in December 2017 do not process a Bitcoin spot. Participants trade contracts that track the price of Bitcoin in cryptocurrency markets and pay those contracts in US dollars when they expire. These contracts are paid for based on a named price index “CME CF BRR”, Composed of a BTC price based on the values ​​seen on various cryptocurrency spot exchanges called constituent exchanges. Have CME futures products has generated notable interest in the years since its publication.

Although CME Bitcoin futures are only traded for cash, cryptocurrency traders and participants pay attention to their price development. especially the chart gaps, which traders popularly refer to as “CME gaps”.

These gaps occur when the BTC spot opens on the next trading day above or below the close of the previous day. based on BTC’s 24-hour cash schedule versus the hours set by CME for trading products. Bitcoin’s spot price has been known to return to the gap that remains on the price chart.

That is a highlight of the report CME handles more total volume than any spot exchange included in its CF BRR. The report added: “This also makes it easier to determine prices on the futures market.” In addition, the participants in CME’s Bitcoin futures trade on average significantly larger positions:

“A relative number of small transactions in a given market is usually not statistically significant for pricing purposes. CME’s medium-sized futures trading facilitates its leadership position in pricing when compared to the constituent exchanges. “

The report also noted the presence of other conventional futures markets that had an impact on the spot prices of other asset classes, so these results are not uncommon.

“There are 85 institutions that have open positions in Bitcoin futures. This corresponds to a similar number to other CME futures on major foreign exchange markets such as the Swiss franc, the US dollar index and federal funds.” Wilshire Phoenix partner and co-author of the report told Cointelegraph, Alexander Chang.

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