Bitcoin CME Front-Month Futures Reach Deepest Discount Ever Recorded

It’s a new record for the CME. The Chicago Mercantile Exchange’s front-month contracts exhibit a large discount compared to bitcoin’s spot market price. These are futures contracts about to expire. The CME’s quarterly contracts tend to trade at a minimum premium, and this kind of discount for front-month contracts is not usual. They’ve been trading at a discount for a couple of months, but they reclaimed a premium with the market recovery at the beginning of August. As we all know, that didn’t last.

Since December 2017, the CME bitcoin futures contracts have been in place. The CME’s front-month contracts haven’t traded this low since July 21st of 2021, more than a year and a half ago. A hardcore short squeeze ensued at that point. The liquidation amounted to more than $750 million worth of shorts, “leading the open interest denominated in bitcoin to fall by 47,000 BTC,” Arcane Research tweeted.

the most recent “The Weekly Update”Arcane Research examines the CME futures market situation in a report:

“The futures basis on CME’s most traded BTC contract, the front-month futures contract, is trading in sharp backwardation as the annualized basis reached an all-time low yesterday, averaging at -3.36%.”

CME BTC Futures Annualized Rolling 1-Month Basis - Arcane Research

 Source:| Source: Weekly Update

CME Futures Trading at a Low Level:

The macro factors are the Bitcoin futures market shows signsMarket exhaustion. NewsBTC described the situation in these words:

“The reason behind the bitcoin futures premiums being down can be attributed to sell-offs that have rocked the digital asset in recent times. Not only have the sell-offs been apparent in investors who are directly exposed to the cryptocurrency but those who have exposure through traditional markets vehicles like ETFs have been selling off too.”

Bitcoin CME Futures - TradingView

BTC Futures CME 08/25/2022 Source:| Source:

However, Arcane Research’s “The Weekly Update” also identifies very specific factors. These relate to both the ProShares Bitcoin Strategy or BITO.

“The growing discounts in the front-month contracts might be explained in part by structural effects. BITO began rolling over their August contracts, potentially causing downward pressure to the front-month contract. Yesterday, BITO rolled 1000 August contracts over and will continue to roll over 3000 more August contracts until Friday. Previous rolling periods have tended to be accompanied by a declining front-month basis.”

In any case, we can’t discard the situation as a normal occurrence. It is too expensive. According to Arcane Research, it might be related to the disastrous start of the week for Nasdaq and the S&P 500. The dollar strengthening. A lack of liquidity. One thing’s for sure, something’s going on.

 Charts by TradingView and| Charts by TradingView and The Weekly Update

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