Bitcoin & Ether Futures on CME Display Uncommon Bullish Sign

• Bullish Sentiments Surge as BTC and ETH Futures Prices Experience Unprecedented Gap
• A Rare Pattern in CME Futures Market
• Understanding Futures Contracts
• Next-Month Contracts Trade at Premium
• Specifications of CME Futures
• Elevated Next-Month Premium Signifies Bullish Sentiment
• Traditional Market Players Take Bullish Bets

Bullish Sentiments Surge as BTC and ETH Futures Prices Experience Unprecedented Gap

Last week witnessed a significant surge in the gap between next month and front month futures prices for Bitcoin$42,260 -0.64% (BTC) and Ethereum$2,315 -2.42% (ETH), reaching the highest point since 2021. This phenomenon, known as contango, signals a bullish market stance.

A Rare Pattern in CME Futures Market

An uncommon pattern has recently surfaced in the futures market of the Chicago Mercantile Exchange (CME) linked to BTC and ETH. This pattern indicates a robust investor predilection towards taking long or leveraged bullish bets on the leading cryptocurrencies.

Understanding Futures Contracts

A futures contract is a legally binding agreement to purchase or sell the underlying asset at a pre-determined price on a specified future date, known as the expiry date. Generally, futures markets are in contango - a term used to describe a situation where the futures price rises above the spot price, with futures further out attracting higher prices than those nearing expiration. An increase in buying pressure often results in the contango widening.

Next-Month Contracts Trade at Premium

BTC and ETH futures recently showcased similar characteristics, with the next-month contract trading at a noticeable premium compared to the front month contract. This is an unusual occurrence since 2018, as per data analysed by K33 Research.

These findings reflect a very bullish sentiment in the CME, where there's an intense urge to enhance long exposure, driving yield premiums to spike, said Vetle Lunde, a senior analyst at K33 Research.

Specifications of CME Futures

The futures contracts under consideration are sized at five BTC and 50 ETH, respectively. As of the time of writing, December expiry contracts could be termed as the front month contracts, whereas those set to expire in January represent the next month contracts.

Elevated Next-Month Premium Signifies Bullish Sentiment

The recent widening of the spread between next and front month BTC and ETH contracts to an annualized 1.5% is the first of its kind since the bull market of early 2021. This pattern has only appeared four times till date, with three instances during bull markets and once just weeks before the infamous coronavirus-induced market crash of March 2020.

Lunde mentioned that the contango in both markets slightly decreased on Monday, but still signifies a bullish sentiment.

Traditional Market Players Take Bullish Bets

According to Huf, co-founder of Protocol, the recent contango widening stemmed from traditional market participants taking bullish bets. Increased futures premiums could lead to a spike in interest in basis trades or cash and carry arbitrage. This strategy involves acquiring the cryptocurrency in the spot market and concurrently selling futures, thereby enabling traders to gain the premium while evading price volatility.

Edited by Jonathan Stoker