Notes 1/11: Bitcoin Futures Premium

The rally in Bitcoin price might have some more runway left.   

Bitcoin futures at the Chicago Mercantile Exchange (CME) are displaying a “slight premium” – the first one since FTX fell in November 2022 – of 0.2% for bitcoin price in the short term, according to data from Arcane Research. There is good news all around. The cryptocurrency’s futures at Binance are also showing a bump of 2.4% in the same period.

CME Versus Binance  

While CME overtook Binance in trading volumes during the 2021 runup in cryptocurrency prices, it seems to have faltered since. The trading volume for its bitcoin futures product was $14.2 billion in December 2022, according to data from CryptoCompare. That’s a fraction of the $222.56 billion trading volume at Binance in the same period, based on data from online publication The Block.

A 2020 study examined the effect of derivatives on bitcoin price and concluded that prices at CME and US-based spot exchanges “react to, rather than lead, price movements” on unregulated exchanges.

What this means is that the trading volume at CME for bitcoin futures is unlikely to have much effect on the overall bitcoin price in the near-term. Rather, it is the trading action at Binance – the biggest emitter of crypto price volatility – that will determine a future course of action for Bitcoin. For what it’s worth, the long-term prognosis for bitcoin price remains the same. Bitcoin futures at both CME and Binance are in backwardation. This means that current prices for contracts are higher than those in the future, pointing to a further decline in the cryptocurrency’s price. The most important question here is about the catalyst for the decline.

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