Today, open interest in Bitcoin futures (BTC) on the Chicago Mercantile Exchange (CME) reached a new all-time high of $841 million.
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While this cannot be considered bullish on its own, it does indicate that professional investors‘ interest in Bitcoin continues to grow at an immense rate.
Futures premium provides more useful data
The best way to measure the inventors‘ sentiment about futures contracts is by measuring their premium against the market price of Bitcoin on the spot exchanges. Normally, the indicator should show a premium of 0.5% to 1% for 1-month CME futures contracts.
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By postponing the financial settlement date, it is natural for sellers to be required to contribute more money.
On the other hand, an excessive premium will create an opportunity for arbitrage, as the futures contract can be sold and the same amount bought on the spot markets at the same time. This is a neutral market strategy, commonly known as „cash and carry“.
CME Bitcoin futures basis, or premium
The top graph shows how the base has been consistently in good shape since mid-March, and recently maintained levels above the 1% premium for ten consecutive days.
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A positive basis indicates contango, which means that sellers are demanding more money to postpone settlement.
This situation, known as contango, is the main indicator of a healthy, bullish derivatives market. This is especially true when open interest increases, as new positions are created under ideal circumstances.
CME’s Bitcoin options markets are growing
CME’s Bitcoin options markets are relatively new, having been launched in January 2020. It certainly looks modest compared to the leading exchange Deribit, although CME has achieved an impressive open interest of $440 million at the end of June.
The current open interest in WEC options of $171 million is a trend that has been constant since its launch, as it is highly concentrated in call options.
This means that investors can capitalize on the right to purchase Bitcoin futures from CME at a fixed price, also known as a strike.
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GCE options contracts expire on the last Friday of each month, causing the sharp drops in open interest shown in the chart.
As things currently stand, 66% of CME’s open interest is due on 28 August, while the other 14% will expire at the end of September.