Following the unexpected spike caused by the Twitter biography update for Elon Musk, the demand for bitcoin (BTC) appears to be particularly high in the professional trading environment.
According to TradingView, the BTC1 Index is Traded! Which is CME Bitcoin futures contracts with a first expiration – currently in February – with a premium of over 1% on the BTC spot markets. This positive divergence of prices between futures and basis – which traders call “contango” – indicates that few institutions are willing to operate on a short-term basis. Since this mismatch can be counterbalanced, the state of constant contango means that buying pressure is overwhelming arbitrage that cannot control price divergence.
The one percent deviation for a contract that expires in a month is significant. Naturally, long-term contracts have a significant bias, the longer the waiting time, the less convincing the possibility of arbitration. The attractiveness of this opportunity has been compared to the “risk-free interest rate,” usually on US government bonds. The current rate of return is just over 1% per year, which means earning 1% per month should be more than profitable.
If we look at the maps, it is clear that the CME contract is trading about $ 500 higher, a 1.3% difference. It’s worth noting that TradingView delays the CME data by ten minutes, which means that the chart should be compared to previous indicators on Bitstamp.
CME is a traditional futures exchange that offers contracts of 5 BTC each, which is not available to most traders. Contango’s claim for this platform is strong evidence that traditional organizations are particularly optimistic about Bitcoin.
In fact, the institutional world has recently witnessed an exciting short squeeze triggered by sellers on Wall Street Bits, a Reddit forum. For stocks like GameStop, AMC, and Nokia, there has been a lot of gains as the public rallies for large short assets opened by hedge funds.
However, high futures premiums are usually interpreted as a sign of exhaustion. This indicates that most of the traders looking to buy the asset are actually high, and buyers have little firepower left to continue to rise.