A new report by investment firm Wilshire Phoenix claims that the Chicago Mercantile Exchange, or CME, is affecting the cash-settled bitcoin futures price, even though it is not directly correlated with the real bitcoin (BTC).
“The Wilshire Phoenix results indicate that CME Bitcoin futures contribute more to price discovery than the corresponding spot markets,” Wilshire Phoenix said in the October 14 report.
“The leading futures market assumes that there is a solid base of traders who can trade in these markets for many reasons such as confidence in the exchange and shorter waiting times.”
Pricing basically refers to how every real bitcoin on the market is valued – the current market interest rate or spot rate. Basically the Wilhire report showed that these CME products affect the price of BTC more than BTC itself, which is traded on cryptocurrency exchanges.
CME Bitcoin Futures was launched in December 2017 and does not process bitcoin spot currencies. Participants trade contracts that track bitcoin price in cryptocurrency markets and pay those contracts in US dollars when they mature. These contracts are paid out based on the CME CF BRR price index, which consists of the price of BTC based on the values observed on a number of spot cryptocurrency exchanges called components. Futures products on the Chicago Mercantile Exchange have received a lot of attention since their launch.
Although CME Bitcoin futures are traded only for cash, cryptocurrency traders and participants are interested in their price movement, especially card gaps, often referred to as “CME holes.”
These gaps are created when the spot BTC opens on the next trading day higher or lower than the end of the previous day, depending on the 24-hour trading schedule for spot BTC, compared to the product hours quoted from CME. Bitcoin spot rate is known to be due to any gaps in the price chart.
One aspect highlighted in the report is that the CME trades in greater aggregate volume than any single exchange listed on CF BRR, the report says, adding, “which also contributes to price discovery in the futures market.” In addition, participants in CME Bitcoin futures, on average, trade in larger positions, in particular:
“The relative number of small transactions in a given market is usually not statistically significant for pricing purposes. Average volume in the CME futures market makes pricing easier compared to component exchanges.”
The report also indicates the existence of other common future markets that affect the spot prices of other asset classes, so the results are not unusual.
“There are 85 institutions that hold open positions in bitcoin futures, which is comparable to the number of other futures contracts on the Chicago Mercantile Exchange in major foreign exchange markets such as the Swiss franc, US dollar indices and federal funds, Partner Wilshire Phoenix and co-author Alexander Zhang told Cointelegraph.