When the price of bitcoin (BTC) fell 10% to $ 29,150 on January 27, something unusual happened to the BTC futures contract on the Chicago Mercantile Exchange (CME).
When the price fell, these CME Bitcoin futures were trading at a 1% discount on Coinbase, indicating a disruption between both markets.
Traders immediately pointed out that futures contracts that expire within 48 hours are responsible for dumping prices. Now, before we jump to a quick conclusion, it should be noted that every card sale requires a (tall) buyer of the same size.
Therefore, there can be no imbalance between open interest. In addition, a futures contract can be extended (extended) until a future date if the holder has sufficient margin to cover them.
Instead of assuming that one factor influenced the bitcoin price, it is better to analyze the daily movements of both markets (futures exchange and spot exchange).
The premium (or base) for a futures contract measures the long-term futures contract’s premium to the current level (normal markets). When this indicator turns off or becomes negative, it is an alarming red flag. This position is also known as downtrend and indicates bearish sentiment.
These fixed monthly contracts usually trade at a small premium, indicating that sellers are asking for more money to delay settlement for a longer period. In healthy markets, futures contracts should be sold at an annual premium of 5% to 15%, or so-called contango.
The mismatch between each market can be the result of long term contract liquidation by traders with insufficient margins, weak order books, or heavy price movements in front of the remaining spot markets.
Therefore, this data alone does not reveal the cause or effect. Moreover, a similar movement took place on January 18.
Notice how the CME BTC premium collapsed to negative 1% despite no apparent volatility on the BTC spot exchanges. It is safe to say that this event has nothing to do with the movement of the market price.
By analyzing the January 27 crash from a more detailed point of view, it is possible to determine whether the negative CME premium was preceded by market volatility.
The data levels mentioned above show that instead of acting as a leading indicator, CME Bitcoin’s futures premium fell later in the day. When Bitcoin experienced resistance at $ 31,800, selling pressure on the CME continued, temporarily causing a price difference.
There could be several reasons for this effect, so a daily comparison of prices across multiple exchanges could explain whether CME led to the decline.
To summarize, there is no evidence of any CME Bitcoin futures price predictions. These markets are incredibly sophisticated and usually move together. In addition, the regular premium could face some short-term deviations similar to January 18, regardless of the volatility of Bitcoin at the time.