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The impact of CME Bitcoin futures on the price of Bitcoin



The price of an actual Bitcoin in the open crypto market, known as the BTC spot, fluctuates based on a myriad of factors, such as trading volume, usage and adoption. However, other catalists affect property in a cyclical way. Cash-Bitcoin fixed futures trading products from the Chicago Mercantile Exchange which stands as an inferior highly referenced indirect element contributing to the Bitcoin price direction (BTC).

“The Bitcoin derivative products offered by CME are just a vehicle for accredited investors to place sophisticated and risky offsetting goods that may not be accessible to them,” said Shawn Dexter, a decentralized financial analyst in Quantum Economics ̵

1; a firm analysis analysis – told Cointelegraph on October 8. “This will lead to both, short-term and long-term impact on prices.”

CME Bitcoin futures trading at its simplest

At the height of Bitcoin’s largest bull run so far, CME launched cash-efficient Bitcoin futures trading, on December 17, 2017. Cash-fixed futures, however, do not involve the actual BTC spot. They just let traders bet on the future price of Bitcoin without using the underlying assets.

For example, let’s say the Bitcoin spot price is at $ 10,000 per BTC at the beginning of a month and will end that month at $ 11,000. Buying a CME contract on Bitcoin futures (equivalent to the price of five Bitcoin) when the BTC price is at $ 10,000 and holds until the end of the month means that the trader will receive $ 55,000 cash at the end of the month, not the real Bitcoin.

Since the commodities do not involve actual sales or purchases of Bitcoin, these futures products are logical and may not seem to affect the Bitcoin spot price. In reality, however, these futures weigh on the price of Bitcoin, according to Dexter:

“In the short term, any price effect caused by a heavy purchase in the futures market will quickly recover from the spot market, which will cause prices. But it can also happen if heavy buying takes place in the spot market first . ”

At times, Bitcoin trades at different prices on different exchanges based on events, order book order and other factors. If there is a large enough price difference, a trader can buy BTC for a lower price on one exchange and sell it at a higher price on another exchange. This activity is called arbitrage.

The price of Bitcoin in CME futures is likely to increase dramatically if someone buys a large number of Bitcoin futures contracts in CME. It will not directly move the Bitcoin spot price, even if the eager trader will then buy or sell the Bitcoin spot at a cheaper price as an arbitrage opportunity, accelerating the spot price at the same time, according to Dexter. This concept works for a number of scenarios between CME and spot BTC.

At a larger time, CME CME futures products are affecting Bitcoin spot prices more significantly, Dexter explained, adding: “CME products allow for increased price stability and risk reduction . It is bullish for Bitcoin because it allows larger investors to engage in the market with less hesitation. Thus increasing liquidity and stability. “Importantly, CME’s BTC futures add money to market from large major traders and other participants while also allowing them to block their goods.

An explanation from a regulator

Derivatives trading markets for commodities can affect their respective underlying spot markets, according to Heath Tarbert, chairman of the United States Futures Trading Commission. Derivatives include futures trading products. “Sometimes, the price of cattle is set in the derivatives market,” Tarbert told interviewer Anthony Pompliano on Oct. 7 as part of a segment during the LA Blockchain Summit. Cows and Bitcoin are both considered commodities. Tarbert added: “People say, ‘The bull futures contract says it should be x worth per head, and, therefore, it should be priced in the real market.'”

Some commodity futures are physically fixed, however, involving the transfer of the underlying asset after expiration, thus, differing from Bitcoin CME futures products. Along with similar findings, investment firm Wilshire Phoenix released a lengthy report on the subject of CME BTC futures on October 14, 2020, citing the conclusion: “CME Bitcoin Futures has become more and more contributing to price discovery rather than related spot markets. “

How about CME slots?

The crypto space gives significant weight to the CME slots. A gap occurs in the CME Bitcoin futures chart when the Bitcoin spot price moves while the CME Bitcoin futures market is closed for the weekend or holidays. If CME opens Bitcoin for trading after a major move from Bitcoin, there is a space left on the chart between the listed price when CME closes and the BTC price when it opens.

The crypto space often expects the price of Bitcoin to return to such levels, “filling” any gaps in the chart. “Price does not have to trade in both directions through a space to be considered filled,” Dexter explains. “A space is considered to be filled as long as it meets the previous price traded before the space.”

Trading is mainly about possibilities. The possibility of preferring filled spaces, according to Dexter, though he added, “It is important to note that spaces do not need to be filled,” because spaces exist in the same category as other chart patterns:

“The previously exchanged price with CME before any slot can be interpreted as the Bitcoin market fair price. Moreover, depending on the type of slot, market participants are likely to open and / or close positions in formerly traded price, so cause filling space. “

Contrary to market sentiment that favors filling the gap, however, Melvis Langyintuo, a client solution strategist at OKCoin, told Cointelegraph on October 6 that CME Bitcoin gap fills are unlikely to be due to the lack of Bitcoin CME futures trading volumes compared to crypto-native derivatives exchanges.

In the last 30 days, Bitcoin CME futures have generated approximately $ 433 million in average daily volume, according to Langyintuo. In contrast, the popular crypto derivatives exchange BitMEX often hosts more than $ 1 billion in 24-hour trading volume. In the last 24 hours, BitMEX’s Bitcoin perpetual swap futures product has hosted nearly $ 1.4 billion in volume, based on numbers posted on the exchange. Many other large crypto-native exchange derivatives are also available, and exchanges are trading throughout the weekend while CME Bitcoin futures are not, which adds to the equation.

“This creates a CME gap that is not a consequence compared to BTC which potentially fills the gap,” Langyintuo said. “CME BTC prices are either following the BTC price shifts or they are a bet on which the CME BTC market could reopen on Monday,” he added. “Trading CME futures over the weekend is similar to the importance of placing a ‘put’ or ‘call’ over the weekend to get that spread,” he explained, referring to the similarity in Bitcoin options trading – another type of derivative seen in CME and in the crypto space. Langyintuo concludes:

“For the price to fill the gap, it will be necessary to have a large quantity in both bids and offer part of the futures contract before the weekend, and on Sunday, once the market resumes trading, the same level the volume needs to be maintained to normalize the space in an orderly manner. “

A vast number of forces are affecting Bitcoin. One conclusion can be difficult when it comes to how much impact any specific driver has, although in this case, it seems as if Bitcoin’s CME futures could affect Bitcoin’s spot price on a number of levels.


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