Since 9/11, CME’s bitcoin futures have traded below spot prices on regular exchanges. Technically, this situation is called a postponement. While it points to a bearish market structure, there are a number of factors that could temporarily distort this indicator.
Typically, these CME fixed-month contracts trade at a slight premium, indicating that sellers are asking for more money to withhold payments for a longer period of time. Therefore, in a healthy market, futures contracts will trade at a spread of 0.5% to 2%, a condition known as a pushback.
However, a well-known futures seller can temporarily distort the contango. Unlike perpetual contracts, fixed futures contracts do not have funding rates, so their prices can vary significantly from spot exchanges.
Active Sellers Cause Bitcoin Futures to Drop 5%
Whenever shorts (sellers) are active, 2-month futures contracts trade at a discount of 2% or more.
CME 1-Month Bitcoin Futures Spread vs. BTC Price | Source: TradingView
Note that when the 1-month CME futures contract is trading near fair value, there is a 0.5% discount or a 0.5% spread compared to spot exchanges. However, during the 9/11 bitcoin price crash, aggressive sellers caused CME futures to trade 5% below normal market prices.
The current discount rate of 1.5% is uncommon but can be explained by the contagion risk of FTX and Alameda Research’s bankruptcy. Together, these institutions are arguably among the largest market makers in the cryptocurrency space, so their failure would certainly send shockwaves through all currency-related markets.
The bankruptcy has had a severe impact on over-the-counter trading desks, investment funds, and loan servicing, including Genesis, BlockFi, and Galois Capital. Therefore, traders should not expect much arbitrage activity between CME futures and other exchanges in the physical market.
The lack of market makers exacerbates the negative impact
Excessive long and short demand on the CME ends up distorting contango metrics as market makers attempt to reduce exposure and assess counterparty risk.
Contract hedging is a key indicator of a bearish and hyperactive derivatives market. Such a move can happen during liquidation orders or when major players decide to use derivatives to short the market. This is especially true when open interest (OI) increases as new positions are created during these unusual circumstances.
On the other hand, excessive discounting creates an arbitrage opportunity because the same number of futures contracts can be sold in the spot (or margin) market. This is a market-neutral strategy, often referred to as “reverse cash and carry.”
Institutional interest in CME futures remains steady
Curiously, CME Bitcoin futures open interest hit a 4-month high on Nov. 11. The data measures the total size of buyers and sellers using CME derivatives contracts.
CME Bitcoin Futures Open Interest | Source: coin glass
Note that the all-time high of $5.45 billion was set on October 26, 2021, but the price of Bitcoin was close to $60,000 at the time. Therefore, the $1.67 billion in CME futures open interest for November 10, 2022, remains relevant in terms of contract volume.
Traders often use open interest as an indicator to confirm trends or at least demand from institutional investors. For example, more and more active futures contracts are often interpreted as new money entering the market, regardless of the trend.
While the data cannot be considered bullish on its own, it does suggest that professional investors are still interested in Bitcoin.
As further evidence, note the OI chart above, showing that sophisticated investors do not reduce their positions when using Bitcoin derivatives, regardless of what critics say about the cryptocurrency.
Given the volatility in the market, traders should not assume that the 1.5% discount on the CME futures contract implies a long-term bearish bias.
There is certainly short demand, but demand from market makers is a major factor in the current distortion of the contango.
Other News
6,522 “Hibernation Bitcoin” Worth $107M Awakens in 5 Years
On November 16, 2022, at block height 763,474, someone moved 6,522 bitcoins worth approximately $107 million after the funds had been idle for more than 5 years. The “sleeping bitcoin” has woken up amid the recent capitulation of the crypto market, even though its value is 75% lower than it was a year ago.
After Years of Inactivity, a Stack of Old Bitcoins Starts Moving
About 6 days ago, 3,500 bitcoins from 2011 were transferred for the first time in 11 years. In the bloody cryptocurrency market caused by the FTX crash, old coins were somehow revived and moved to unknown wallets. For example, a bitcoin address “1QBG9” transferred 25 BTC at block height 762,719 from an address created on November 13, 2011.
Shortly thereafter, after more than a decade of inactivity, 50 bitcoins from 2010 were spent on November 14, 2022. Specifically, Bitcoin addresses “1LB8B“ These 50 BTC were transferred at block height 763,149 created on May 23, 2010. All three mentioned above are bitcoins stored at addresses that have been dormant for over a decade.
After Dormant for Over 5 Years, 6,522 Bitcoins Worth Over $107 Million Move
Two days after the 50 bitcoins in 2010 were transferred, BTC originating from an address created on July 31, 2017, was also transferred after being idle for more than 5 years. While these coins are not that old, the blockchain parser from btcparser.com has detected that individuals or organizations spend approximately 6,522.4 BTC.
At current prices, that figure is worth more than $107 million. Bitcoin address “1LVB” also connected the first accumulated nearly 10,000 BTC address created on May 29, 2011. Bitcoin was trading at $2,875 when the address “1LVBn” was created on July 31, 2017 data via statmuse.com.
This means that the cache contained 6,522 bitcoins, worth only about $18.7 million, and then “slept” for more than 5 years. If that money were sold today, the owner would have made a profit of over 472%.
If the same owner had purchased approximately 9,478.77 BTC on May 29, 2011, that person could have purchased Bitcoin for $8.3. At that price in the spring of 2011, this person could have made a profit of about 1,189% against the dollar in 11 years.
Owner sends Bitcoin cache with privacy tech to zero to two addresses
However, this amount does not appear to have been sent to exchanges, as 6,522 bitcoins are currently located at two different addresses, according to on-chain data. change of address “wxya” holds 6,061.83 BTC and transfers 460.57 BTC to address “bc1qt’. At the time of writing, these tokens are currently inactive.
In the history of the 6,522 BTC spent on November 16, 2022, no transaction has ever been privately sent. Blockchair’s security tool says trade The last change raised the security level of 6,061.83 BTC to “0” or “critical.”
Source: Blockchair
Every time the owners of these bitcoins transfer their funds, the inputs, and outputs match, making them easily identifiable through blockchain analysis. It’s worth noting that the technical terms “spend” and “change” in this article don’t necessarily mean that bitcoins have been sold.
Source: Blockchair
In fact, they can be moved to other addresses of the same owner. It should be noted that the bitcoins originating from the wallet on May 29, 2011 (also associated with the 6,522 BTC spent on November 16, 2022) may have transferred ownership on or off the blockchain.
The owner of this bitcoin address did not spend the corresponding BCH associated with the bitcoin address “1LVBn”. Currently, there are still 6,522.4 BCH in the address, worth about $680,939.
