the impact of CME Bitcoin futures on the price of Bitcoin

The price of a real bitcoin in the open crypto market known as the BTC spot (spot) fluctuates due to a variety of factors such as trading volume, usage, and acceptance. However, other catalysts influence the active ingredient indirectly. The Chicago Mercantile Exchange’s cash-settled Bitcoin futures trading products are a heavily referenced indirect item that contributes to the direction of Bitcoin (BTC) prices..

“”The Bitcoin derivatives offered by CME are merely a means for accredited investors to carry out sophisticated and risky operations to which they would otherwise have no access.“Shawn Dexter, a decentralized financial analyst with Quantum Economics – a market research firm – told Cointelegraph on October 8th,” This is causing a price shock in the short and long term. “

CME Bitcoin Futures trading in its simplest form

At the height of Bitcoin’s biggest bullish rally to date, the CME started trading Bitcoin futures with cash settlement on December 17, 2017.. However, cash settled futures are not spot BTC. Easy Allow traders to bet on the future price of Bitcoin without using the underlying asset.

the impact of CME Bitcoin futures on the price of Bitcoin
the impact of CME Bitcoin futures on the price of Bitcoin

Let’s say the spot price of Bitcoin starts at $ 10,000 per BTC and ends this month at $ 11,000. If you buy a CME Bitcoin futures contract (equivalent to the price of five Bitcoin) when the price of BTC is $ 10,000 and hold it until the end of the month, the trader will receive $ 55,000 in cash at the end of the month, not Bitcoin real.

Since trading does not involve actual sales or purchases of Bitcoin, these futures products can logically appear as if they shouldn’t affect the spot price of Bitcoin. In reality, however These futures affect the price of Bitcoinaccording to Dexter:

“In the short term, any price shock caused by a major purchase on the futures market is quickly conveyed on the spot market, which leads to a convergence of prices. This could also happen if the main purchase is made on the spot market first.”

Sometimes bitcoin trading is done at variable prices on different exchanges based on events, order book demand and other factors. If there is a sufficiently large price discrepancy, a trader could buy BTC on one exchange at a lower price and sell it on another at a higher price. This activity is known as arbitration.

The price of Bitcoin for CME futures would likely increase significantly if someone were to buy a large number of Bitcoin futures contracts on CME. This does not directly shift the spot price of bitcoin, although eager traders would then buy or sell bitcoin spot at a cheaper price as an arbitrage opportunity, which, according to Dexter, drives the spot price up at the same time. This concept works for a number of scenarios between CME and the spot price of bitcoin.

Over a longer period of time, CME Bitcoin futures trading products have a greater impact on the spot price of Bitcoin, Dexter said, adding, “CME products allow for greater price stability and increase this reduced risk. This is bullish for Bitcoin as it is large investors enables you to enter the market with less hesitation. This increases liquidity and stability. ” In essence, CME BTC futures increase the market for large traders and other participants while also allowing them to hedge their transactions..

A statement from a regulator

According to Heath Tarbert, chairman of the US Commodity Futures Trading Commission, the commodity derivatives trading markets can affect their respective underlying spot (or spot) markets. Derivatives include futures trading products. “Sometimes the price of cattle is really set in the derivatives markets,” Tarbert told interviewer Anthony Pompliano on October 7th during an LA Blockchain Summit segment. Both cattle and Bitcoin are considered goods. Tarbert added, “People say, ‘Well, the cattle futures contract says it should be x amount per capita, and so this is the price that should be in the real market.’

However, some commodity futures are physically settled, which involves the transfer of the underlying asset after it expires and is therefore different from CME’s Bitcoin futures trading products. With similar conclusions, the investment firm Wilshire Phoenix released a detailed report on CME Bitcoin futures on October 14, 2020, citing the conclusion: “CME Bitcoin futures do more to pricing than the associated spot markets“.

What about CME gaps?

The crypto room gives CME violations a significant weight. A gap in the CME Bitcoin futures chart occurs when the spot price of Bitcoin moves while the CME Bitcoin futures markets are closed for the weekend or the holidays.. When CME Bitcoin futures are opened for trading after a large Bitcoin move, a gap remains on the chart between the trading price when the CME closes and the price of BTC when it opens.

The crypto room often expects the price of Bitcoin to return to such a level and “fill in” any gaps on the chart. “Price doesn’t have to trade either way through a gap that is considered full,” explained Dexter. “”A gap is considered filled as long as it meets the previously negotiated price before the gap“.

Trading is mostly about the chance of winning. The probability favors gaps that are filledAccording to Dexter, he added, “It’s important to be aware of this Gaps do not necessarily have to be closed“because the gaps are in the same category as other chart patterns:

“The price previously traded on CME before a gap could be interpreted as the fair market price for Bitcoin. Depending on the type of gap, market participants are likely to open and / or close positions at the previously traded price, which means that the gap is filled.”

In contrast to market sentiment, which favors filling in the gaps, OKCoin customer solutions strategist Melvis Langyintuo told Cointelegraph on October 6th that eBitcoin’s void in CME is unlikely to close due to the lack of trading volume for Bitcoin futures compared to native derivatives exchanges in crypto.

For the past 30 days, CME Bitcoin futures have achieved an average daily volume of approximately $ 433 million, according to Langyintuo. In contrast, the popular crypto derivatives exchange BitMEX often offers a trading volume of more than $ 1 billion within 24 hours. In the past 24 hours, BitMEX’s Bitcoin futures product for perpetual exchange had a volume of nearly $ 1.4 billion, based on figures published on the exchange. There are other high volume crypto derivative exchanges and These exchanges trade all weekend while CME Bitcoin futures don’t, and this adds to the equation.

“This makes the CME gap unimportant compared to BTC and potentially fills the gap,” Langyintuo said. “”CME Bitcoin prices either lag behind Bitcoin price movements or are a bet on where the CME Bitcoin market could reopen on Monday“He added.” Trading CME futures over the weekend is essentially like putting a weekend “sell” or “buy” in the gap to capture that difference, “he explained, pointing to a similarity to trading Bitcoin -Options, another type of derivative seen in the CME and in the crypto room. Langyintuo concluded:

“For price to fill the void, there would have to be a lot of volume on both the bid and ask parts of the futures contract before the weekend and on Sunday when the market starts trading again. The same volume levels would have to be maintained to normalize the gap smoothly. “

A variety of factors affect Bitcoin. It can be difficult to draw a conclusion when it comes to how much influence a given factor has, although in this case, CME Bitcoin futures can affect the spot price of Bitcoin on several levels.

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