It’s a new record for the CME. The Chicago Mercantile Exchange’s front-month contracts exhibit a large discount compared to bitcoin’s spot market price. These are the futures contracts that are soon to expire. The CME’s quarterly contracts tend to trade at a minimum premium, and this kind of discount for front-month contracts is not usual. They’ve been trading at a discount for a couple of months, but they reclaimed a premium with the market recovery at the beginning of August. As we all know, that didn’t last.

The CME futures contracts on bitcoin have been available since December 2017. The CME’s front-month contracts haven’t traded this low since July 21st of 2021, more than a year and a half ago. At that time, a hardcore short squeeze followed the phenomena. The liquidation amounted to more than $750 million worth of shorts, “leading the open interest denominated in bitcoin to fall by 47,000 BTC,” Arcane Research tweeted.

A couple of interesting charts from this week:
$757 million worth of shorts was liquidated yesterday, leading the open interest denominated in bitcoin to fall by 47,000 BTC.

Sources: @bybt_com, @skewdotcom, and @tradingview pic.twitter.com/XGcpO4jmSq

— Arcane Research (@ArcaneResearch) July 27, 2021

In the most recent “The Weekly Update” report, Arcane Research tackled the CME futures situation:

“The futures basis on CME’s most traded BTC contract, the front-month futures contract, is trading in sharp backwardation as the annualized basis reached an all-time low yesterday, averaging at -3.36%.”

CME BTC Futures Annualized Rolling 1-Month Basis | Source: The Weekly Update

Why Are CME Futures Trading This Low?

There are macro factors, like the bitcoin futures market showing signs of market exhaustion. We at NewsBTC explained the situation as follows:

“The reason behind the bitcoin futures premiums being down can be attributed to sell-offs that have rocked the digital asset in recent times. Not only have the sell-offs been apparent in investors who are directly exposed to the cryptocurrency but those who have exposure through traditional markets vehicles like ETFs have been selling off too.”

BTC futures on CME for 08/25/2022 | Source: TradingView.com

However, Arcane Research’s “The Weekly Update” also identifies very specific factors. These are related to the present and the ProShares Bitcoin Strategy ETF or BITO:

“The growing discounts in the front-month contracts might be explained in part by structural effects. BITO has begun rolling their August contract exposure, possibly causing downward pressure on the front-month contracts. Yesterday, BITO rolled over 1000 August contracts and will roll over a further 3000 August contracts by Friday. Previous rolling periods have tended to be accompanied by a declining front-month basis.”

In any case, we can’t discard the situation as a normal occurrence. The discount is too steep. According to Arcane Research, it might be related to the disastrous start of the week for Nasdaq and the S&P 500. Or to the dollar gaining strength. Or to a general lack of liquidity. One thing’s for sure, something’s going on.

Featured Image by Markus Spiske on Unsplash  | Charts by TradingView and The Weekly Update

Suffering the effect of the current bloodbath in the crypto market, Bitcoin’s (BTC) price on May 12 hit its lowest valuation of $26,350 since December 2020. The ongoing bearish trend has remarkable similarity with the previous mid-season bearish trend that lasted from May to June 2021.

In both market crashes, Bitcoin’s price broke the resistance level of $30,000. Recently, it had dropped more than it reversed back in June 2021 when the BTC’s valuation stopped losing at $29,800. In contrast, its price in the current market clash has touched the $26,3000 level.

Related Reading | Dogecoin Has Dropped 90% Since “The Dogefather” Debuted On SNL

Several macroeconomic factors impacted the crypto market in both instances. For example, before 2021’s bearish trend, Chinese banks prevented using crypto by disallowing crypto services for the state’s financial sector. Then Elon Musk added fuel to the fire by reversing his decision to include Bitcoin for Tesla payments. Similarly, the distortion of COVID-19 caused some major countries to step back from the blockchain industry; thereby, the BTC price plummeted dramatically.

Likewise, in the most recent downtrend, geopolitical conditions and macroeconomic facts have decided the fate of Bitcoin. First, the Russia-Ukraine conflict immensely affected the crypto price, with regulators imposing strict rules day by day at a time when Bitcoin is starting to grow worldwide. Then legal ambiguity and Fed regulation of digital assets further plunged back Bitcoin price.

Bitcoin Holders Rushed To Exit Their Assets

Crypto investors have been withdrawing their holdings after the recent slump, and many still hold on to losses and expect crypto prices will rock on again in the future. According to stats, 16,967,726 wallet addresses currently took losses and broke previous records. Crypto history has seen a similar peak on 19 Mach 2020.

The unusual behavior of the crypto market compelled investors to liquidate their assets, neglecting the losses they had taken. That’s why the figure for the following metric has decreased. Now, the number of crypto traders holdings 1K+ coins in their wallets has reached a low of 2,234, and most importantly, this figure was recorded on May 11.

Again, May 11 set a new record of transactions in the Bitcoin network as crypto holders rushed to exit their investments. It has reached a 4-year new high of traded volume with 175,146.8 BTC. The recent volume of committed transactions has eclipsed previous highs.

Related Reading | TA: Bitcoin Gains Momentum, Why Break Above $30K Is Crucial

Considering the present situation of the crypto market, the host of The Wolf of All Streets Podcast, Scott Melker, commented that “the entire market is reeling.”

He added:

I think that markets are in a full irrational panic. The pendulum has swung to extreme fear, as it always does. This causes people to sell assets at or near the bottom.

Featured image from Pixabay and chart from TradingView.com