• “We’ve seen that demand pulled away on the basis of people losing money — on derivatives platforms — and that money isn’t immediately replaceable so that demand will take time to build up again,” said Campbell Millar, chief operating officer of LMAX Group.
  • “Crypto can come back dramatically, it swings and sentiment changes a lot,” said Joshua Lim, head of derivatives at Genesis Global Trading. “We can see new highs and I have no doubt the basis will be wider than where it is now.”

There was a big dip for the bitcoin spot market earlier this week, but the futures market is still seeing some demand. Bitcoin futures have held at historically low premiums to bitcoin in the spot market, with futures trading about 5% higher, giving the basis trade a thin platform to stand on.

The basis trade, which is when someone buys a commodity at spot prices to take a long position while simultaneously having a short position through derivatives like options or futures. 

Earlier this year, “there was extreme demand for crypto and everyone wanted access to it,” said Campbell Millar, chief operating officer of LMAX Group, which operates LMAX Digital, an institutional exchange for bitcoin.

Since spot bitcoin has fallen from its record highs of about $63,000 in April, the “only thing that has changed is demand,” Millar said. As excess demand has disappeared, the market has corrected significantly from overboard conditions after the Coinbase listing, Millar said. 

“We’ve seen that demand pulled away on the basis of people losing money – on derivatives platforms – and that money isn’t immediately replaceable so that demand will take time to build up again,” he said. 

If the market continues to slow down and there’s a sudden rapid increase in [demand] for crypto, that could lead to some increase for the basis in the market driven by demand, he added. 

On the long side of the trade, retail market participants were “adding levered exposure at premiums far above spot, and it was accelerated by the price action being bullish for crypto throughout the quarter,” said Joshua Lim, head of derivatives at Genesis Global Trading. “The demand from retail was only partially countered by institutional capital who went short the basis, looking to close the gap between futures and spot.” 

Although the premium margin for bitcoin futures is at historical lows, institutional positioning is bullish right now, with not as much retail leverage in the system, Lim said. This means funding for futures is cheap because retail participation is lower due to the selloff. 

“Crypto can come back dramatically, it swings and sentiment changes a lot,” Lim said. “We can see new highs and I have no doubt the basis will be wider than where it is now.”

On Tuesday, June 22, bitcoin rallied after falling below $30,000. The decline could be attributed to a handful of elements, but negative sentiment from China’s clampdown on cryptos continued to chip into the marketplace as the largest digital currency hit a new five-month low on Tuesday morning.  

China’s central bank, The People’s Bank of China (PBOC) said the digital currency “spawns the risks of criminal activities such as illegal asset transfers and money laundering, and endangers people’s wealth” in a note on Monday, June 21. And over the weekend 90% of China’s bitcoin mining was estimated to be shut down, according to a report on Sunday from the Global Times.

Within the negative news, bitcoin fought its way back up to about $34,000 on June 22, with the spot market currently trading a little bit below that range at $33,670 as of 1:19 pm ET on June 23. 

  • Jacquelyn Melinek is a Houston-based reporter covering digital asset funds and markets. She previously reported on energy markets for S&P Global Platts and Bloomberg News and is published in over 65 news outlets. She graduated from the University of North Carolina at Chapel Hill with a degree in Media and Journalism.