This is a new record for CME. Front-month contracts on the Chicago Mercantile Exchange exhibit a large discount compared to the spot market price of bitcoin. These are futures contracts that are due to expire soon. CME’s quarterly contracts trade at a minimum premium, and such discounts are not common for front-month contracts. They have been trading at a discount for a few months, but with the market correction in early August they recovered a premium. As we all know, it doesn’t last.
CME futures contracts on bitcoin have been available since December 2017. CME’s front-month contracts have not traded that much since 21 July 2021, more than a year and a half ago. At the time, a fanatical short squeeze followed the event. The liquidation amounted to shorts worth more than $750 million.This has resulted in a 47,000 BTC drop in open interest in bitcoin,” tweeted Arcane Research.
Some interesting charts from this week:
$757 million worth of shorts were liquidated yesterday, leading to a 47,000 BTC drop in open interest in bitcoin.Source: @bybt_com, @sewdotcomAnd @tradingview pic.twitter.com/XGcpO4jmSq
— Arcane Research (@ArcaneResearch) July 27, 2021
In Latest “Weekly Updates” Report, Mysterious Research tackles CME futures situation:
“The front-month futures contract on CME’s most-traded BTC contract, the front-month futures, is trading in a bullish trend as the yearly base reaches an average of -3.36% yesterday.”
CME BTC Futures Annualized Rolling 1-Month Basis | Source: The Weekly Update
Why is CME Futures trading this low?
There are macro factors, such as bitcoin futures market showing signs Market exhaustion. Here at NewsBTC we explained the situation:
“The drop in bitcoin futures premiums can be attributed to the selloff that has rocked the digital asset in recent days. The selloff is evident not only among investors with direct exposure to the cryptocurrency, but also through traditional market vehicles such as ETFs. The risk-averse people are also selling.”
BTC futures on CME for 08/25/2022 | Source: TradingView.com
However, Arcane Research’s “The Weekly Update” also identifies very specific factors. These are current and related to the ProShares Bitcoin Strategy ETF or BITO:
“The increasing discounts in front-month contracts can be partly explained by structural effects. BITO has started rolling out its August contract exposure, which is likely to ease the pressure on the first month contracts. Yesterday, BITO launched 1000 August contracts and by Friday 3000 August contracts will be carried forward. There has been a decline on a month-to-month basis with declines in previous rolling periods.”
In any case, we cannot leave the situation as a normal occurrence. The discount is huge. According to Arcane Research, this could be related to a disastrous start to the week for the Nasdaq and S&P 500. Or could be related to the strength of the dollar. Or for a general lack of liquidity. One thing is for sure, something is happening.
Featured Image by Markus Spiske on Unsplash | Charts by TradingView and The Weekly Update