On October 14, investment firm Wilshire Phoenix released an effective price discovery report describing how CME Bitcoin Futures (BTC) affected Bitcoin price discovery.
The company concluded that “CME Bitcoin futures are more price dependent than the associated spot markets.” The researchers also suggested the following:
“CME Bitcoin futures have risen and become significant, which is demonstrated not only by trading volume and open interest, but also by the influence on spot price formation.”
Wilhire’s analysis correctly indicates that the opening price in the traditional markets is a controversial issue. The report also added that price studies often show that futures markets lead most of the time, but that does not mean that their conclusions about CME Bitcoin futures are absolute.
According to the report, CME Group, a leading derivatives trading platform, trades $ 5.15 trillion per day in its many markets. According to Nasdaq data, this figure is compared to the daily volume of 430 billion dollars seen in the US stock market.
These data show that the trend towards increasing the volume of derivatives that are 10 times larger than spot exchanges is the rule rather than the exception.
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Key components are missing in the CME index
The US Securities and Exchange Commission (SEC) filing shows that Wilshire Phoenix applied for a listed Bitcoin-backed fund in June, similar to the Grayscale Bitcoin Trust.
It is important to note that the Bitcoin coin owned by the Wilshire Fund will match the BTC price index called the Bitcoin Reference Price (BRR) quoted by CME.
Wilshire Phoenix explained in its report that the CME Bitcoin Reference Rate (BRR) is used to determine the price at which Bitcoin futures are paid in cash in US dollars.
CME Bitcoin reference kit components. Source: Wilshire Phoenix
For US CMEs and ambitious funds, it may make sense to toss stable coin volumes and focus on more regulated exchanges. According to a Bitwise Investments report from 2019, although there is no discovery of the Bitcoin price there, arbitrage efficiency has grown over the years.
Bitwise analysis showed that “the arbitration between these ten exchanges is almost perfect”. Without continuous price variations, the CME meter can easily see many exchanges apart from the top three.
Although the latest offer for the Bitwise Bitcoin ETF was withdrawn, prices were different from the competition. With a broader base, it also included stablecoin exchange.
Bitwise Bitcoin ETF Presentation, March 2019 Source: Bitwise Investments
Those familiar with the cryptocurrency markets know that the market value of stable digital currencies, trading volumes, alternative currency pairs and their impact on the cryptocurrency market has grown significantly over the past two years.
Not only has the market value of stablecoins increased eightfold to $ 21 billion in the last two years, but the dominance and volumes of stable currency pairs have also increased dramatically.
Bitcoin Messari “Real Volume”. Source: Messari.io
Take a look at how things are going with the higher USDT Bitcoin pairs. Even more disturbing is that the Chicago Mercantile Exchange excludes the three largest exchanges from the Bitcoin reference price.
The above data makes the choice of exchanges significantly different from more comprehensive indices such as Bitwise Bitcoin Real Volume, Messaris Real Volume and Nomics’ Transparent Volume. Whatever the reasons for the CME switch, the BRR index excludes the three largest stock exchanges, according to 24-hour Messari data.
The effect of a stable currency on prices has not been tested
The Wilshire Phoenix Report is a step in the right direction and a flawless research methodology. There is plenty of evidence to support their conclusion that CME Bitcoin futures are better than compared to regulated US dollar exchanges.
Although well done, the analysis does not deny that Bitcoin pricing takes place on Binance, Bitfinex, Huobi or OKEx. Institutional investors, mainly located in the United States, may not be interested in less regulated exchange rates or bitcoin pricing in stack coins, but that does not mean it is not related to pricing.
For a retail investor, it makes more sense to validate the pricing of an asset such as Bitcoin, using a wider range of exchanges and prices. This result does not correspond to the claim that Bitcoins CME is incorrect or easily tampered with.
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