The Chicago Mercantile Exchange (CME) saw Bitcoin futures trading at $47,040 early on January 2nd, a significant premium of $1,600 over spot markets. Investors began to speculate whether this uptick was confined to CME futures or indicative of an impending Bitcoin rally. Analysts suggest the premium may stem from institutional investors anticipating the approval of a spot Bitcoin exchange-traded fund (ETF) by regulators, despite the decision still pending.
Senior Bloomberg analysts estimate a 90% likelihood of the U.S. Securities and Exchange Commission (SEC) approving ETF applications, partially explaining the recent optimism among investors. Typically, monthly futures contracts trade at a 5% to 10% basis rate to account for the longer settlement period, a situation known as contango, not unique to the cryptocurrency futures market. Notably, the premium for CME Bitcoin futures between January and November 2023 was relatively low, with intra-day highs rarely exceeding $350, equating to an annualized rate of 14%.
This trend shifted on November 24, 2023, when the CME Bitcoin futures premium reached a two-year high of $900. Interestingly, Bitcoin’s price had surged 41% to $37,750 over the preceding 40 days. More significantly, by December 6, 2023, despite Bitcoin’s price climbing to $43,800, the futures premium had dropped to $530.
In summary, investors’ optimism paid off for those who held their positions for at least two weeks. This brings us to the unexpected CME volatility on January 2nd, where Bitcoin futures reached an intra-day peak of $47,095.
The surge in Bitcoin premium occurred before traditional U.S. markets opened, as noted by a user named DumpWatcher on a social media platform. However, the situation was more dynamic, with $945 million worth of 4,180 Bitcoin futures contracts traded in the early hours of 2024. The premium, which briefly corresponded to an annualized rate of 53%, fell to $500 during the day.
Determining whether the premium was triggered by stop-loss orders from short positions in the futures market is challenging. Considering that Bitcoin’s price only increased by 4.6% since December 29, 2023, while CME futures markets were closed, the likelihood of such a trigger seems slim.
