Wilshire Phoenix: Futures on Bitcoin influence the price more than spot markets

The information provided by the report seems to confirm what many in the industry already believed to be true.


A new report from investment firm Wilshire Phoenix claims that cash-settled trading products related to Bitcoin futures contracts on the Chicago Mercantile Exchange, or CME, affect the price of Bitcoin although they do not directly involve any actual Bitcoin (BTC) quantities.

„Wilshire Phoenix’s findings indicate that CME Bitcoin Futures contribute more to price discovery than related spot markets,“ explains the report published on October 14 by Wilshire Phoenix.

„The guidance of a futures market suggests that there is a strong base of traders who could operate in such markets for many reasons, including confidence in the trading platform and lower latency.

Price discovery essentially indicates how each Bitcoin is valued in the market, i.e. its market price or spot price. In essence, the Wilshire report revealed that these CME products affect the price of BTC more than the actual BTC itself, which is traded on native crypto exchanges.

Launched in December 2017, CME’s Bitcoin Futures do not run Bitcoin spots. Participants exchange contracts that track the price of Bitcoin on the crypto markets, settled in US dollars at maturity. These contracts are based on a price 1k Daily Profit review index called CME CF BRR, which sets a price for BTC based on the values recorded by a series of crypto exchange spots, called constituent exchanges. CME’s futures products have attracted a lot of interest in the years following their launch.

Although the CME’s Bitcoin futures deal only in cash, crypto traders and traders pay particular attention to their price action, especially the empty tracings on the chart often referred to as „CME gap“.

These gaps are formed when the BTC spot price at the opening of the next trading day is above or below the previous day. On spot exchanges, you can trade BTC 24 hours a day, while the CME limits activity on its products to fixed times. Bitcoin’s spot price has a well-known tendency to revisit the gaps left open on the chart.

One aspect highlighted in the report is the fact that the total trading volume on the CME is higher than any exchange spot included in its CF BRR, adding: „this facilitates price discovery within the futures market. In addition, Bitcoin Future’s traders on the CME handle significantly larger positions on average:

„A relative number of smaller trades in a given market is generally statistically negligible for price discovery purposes. The average size of positions in the futures market on the CME favours its advantage in price discovery over its constituent exchanges“.

The report also highlighted the presence of other mainstream futures markets that influence spot prices through other asset classes, so the results are not out of the ordinary.

„There are 85 institutions with open positions in Bitcoin Futures, which represents a similar number to other CME futures in major currency markets such as the Swiss franc, US dollar index and fed funds,“ explained Alexander Chang, partner at Wilshire Phoenix and co-author of the report, in a comment to Cointelegraph.