The Bitcoin (BTC) market has evolved to include the simplest kind of derivative financial products – futures contracts. Those markets now reach $5 billion in daily volumes, taking a significant chunk from spot trading markets.
Bitcoin Price Discovery Shifts to Futures Markets
Bitcoin price discovery mechanisms have shifted in 2019, as the effect of futures is felt more strongly. Those markets invite traders betting only on price moves, with little regard for BTC scarcity or the real-world adoption of the asset.
And since BTC is notoriously volatile, trades are made on the back of its dollar price. The latest estimations see the futures volumes reach as high as $5 billion per day.
Bitcoin Futures market trading at least $5bln on a daily basis pic.twitter.com/lSovIZDQrR
— skew (@skewdotcom) November 28, 2019
Those volumes include both the cash-settled futures of the CME, perpetual swaps on BitMEX and OkEX, and also physically-delivered bitcoin futures on Bakkt and Binance JEX.
Futures Markets Compete with Spot Price Discovery
The effect of futures is most easily seen in countering BTC whales. Even traders without access to actual Bitcoin can bet on the price. At the same time, whales can try to affect the spot market, by direct selling. Futures markets also don’t reflect demand for actual BTC usage beyond price speculation.
Bitcoin trading volumes remain close to $18 billion in 24 hours, still with a prevalence of spot markets. But the futures markets also react with immediate daily growth. In the past days, the Bakkt futures set a series of records in trading and open interest.
Daily summary of Thursday's Bakkt Bitcoin Monthly Futures:
📉 Traded contracts: 2832 ($21.17 million, -50%)
🚀 All time high: 5671 (11/27/2019)
💰 Open interest: $4.31 million (+4%)
— Bakkt Volume Bot (@BakktBot) November 29, 2019
Bakkt volumes still fluctuate, but show that traders are waiting on the sidelines, especially during times of higher BTC volatility. As the Skew statistics show, the past few days in November saw futures markets immediately react with higher volumes, as BTC prices posted more dramatic daily moves.
BTC futures also point to a new development of market sentiment. Spot markets, on the other hand, have been unpredictable in the past, as bot activity and whales could alter trading within hours.
┌#BTC/USDT [4h] Report
├Close: 7606.8 ₮ (-3.2 ₮)(-0.0%)
├4h Vol : 243.65M ₮(-13%)
┊├Buy[50%]: 121.57M ₮(-13%)
┊├Sell[-50%]: -122.08M ₮(-13%)
┊└Net[0%]: -503.8K ₮ ← -1.15M
└ 🔴BEARISH under [7591.60]🔴️ pic.twitter.com/S8qTwPQNct
— Binance Futures Tracker (@FuturesTracker) November 28, 2019
Bitcoin traded at $7,589.05 on average, with BitMex futures markets at $7,600.50. BitMex alone was responsible for $2.4 billion in reported volumes on Friday.
What do you think about the effect of BTC futures? Share your thoughts in the comments section below!
Images via Shutterstock, Twitter @Futurestracker @Bakktbot @Skewdotcom