Cryptocurrency analyst, Saxo Bank Group
December 2017 saw the introduction of the much-anticipated futures product tracking Bitcoin. The CME Group and the Chicago Board Options Exchange launched futures trading on December 10 and 17. Futures allow buyers and sellers to lock in the future price of an underlying commodity or asset to be delivered or sold at some future date.
The CME Bitcoin Futures track the underlying “CME CF Bitcoin Reference Rate (BRR)”. The BRR aggregates the trade flow of major Bitcoin spot exchanges during a calculation window into a once-a-day reference rate of the USD price of Bitcoin . They do not require the physical delivery of Bitcoin but instead are settled based on the cash difference between the initial price and the settlement price.
The Federal Reserve Bank of San Francisco released a report in May 2018 stating that anticipation for these Bitcoin futures and their subsequent launch was a possible reason behind the price increase and the resulting decline – Bitcoin’s price peaked on the same day the CME launched its futures product. The report also stated that the market movements were in line with the behavior of other markets prior to the launch of similar derivative products.
Volumes were initially low following the futures' launch. As the chart below shows, howver, volume as well as open interest have increased in total. Still, though the total volume traded has increased, Cboe’s average traded volume and open interest have decline since January. The open interest for each contract started at similar levels, but now the CME is clearly the winner in terms of volume and open interest.
In the weekly “Commitments of Traders” report from the US CFTC, total open interest in any given futures market is broken down between various users. In its most primitive form, it simply differentiates between commercial and non-commercial users. As Bitcoin is not a commodity, such a breakdown makes little sense, but due to legal requirements both exchanges have nonetheless broken down open interest in this fashion. The result, however, provides little discovery considering the limited changes in long and short positions.
We expect the futures volumes to increase on the backs of increasing institutional demand. For example, Flow Traders (Europe’s largest ETF trader) will begin trading the Nasdaq Stockholm Bitcoin and Ethereum ETNs and will use the future products to hedge their risk.
Additionally, we expect the volume of the futures contracts to rise if the SEC approves a Bitcoin ETF as firms begin to hedge exposure risk to said fund.
The market is speculating that an Ethereum futures product is in the pipeline as the CME Group has introduced an Ethereum reference rate (the Bitcoin reference rate was a precursor to the creation of the Bitcoin futures product of the CME). Overall the introduction of the futures product represents the further institutionalisation of this emerging asset class.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)
