Bitcoin CME Futures Reach Their Deepest Discount Yet

Bitcoin CME futures reach their deepest discount yet comparable to bitcoin’s spot market price, as the CME has set a new high.

These are the contracts for futures that are about to expire. The CME’s quarterly contracts typically trade at a minimum premium, and a discount of this magnitude for front-month futures is unusual. They had been trading at a discount for a few months, but with the market’s rebound at the beginning of August, they restored a premium. That, as we all know, did not last.

Bitcoin futures contracts have been offered on the CME since December 2017. The CME’s front-month futures haven’t traded this low in almost a year and a half, since July 21st, 2021. A hardcore short squeeze followed the phenomenon at the time.

The shorts were liquidated for more than $750 million, “causing the open interest denominated in bitcoin to decline by 47,000 BTC,” according to Arcane Research.

A couple of interesting charts from this week:
$757 million worth of shorts was liquidated yesterday, leading the open interest denominated in bitcoin to fall by 47,000 BTC.

Sources: @bybt_com, @skewdotcom, and @tradingview pic.twitter.com/XGcpO4jmSq

— Arcane Research (@ArcaneResearch) July 27, 2021

Arcane Research addressed the CME futures issue in the most recent “The Weekly Update” 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%.”

It is certain that Bitcoin CME futures have reached their deepest discount yet.

Why Is CME Futures Trading So Low?

There are macro variables, such as the bitcoin futures market, that indicate market weariness. The following is how NewsBTC explained the situation:

“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.”

Arcane Research’s “The Weekly Update,” on the other hand, finds extremely precise elements. These are relevant to the present and the ProShares Bitcoin Strategy ETF, abbreviated as BITO:

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

In any event, we cannot dismiss the situation as usual. The discount is excessive. According to Arcane Research, it might be tied to the Nasdaq and S&P 500’s dismal start to the week. Alternatively, the dollar is strengthening. Or it might be due to a general shortage of money. One thing is certain: something is going on.

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