Sebastian Sinclair

As bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) marches back towards $30,000, traders will look to its market structure for clues, and find the CME futures market showing a “gap” from early March.



Thursday’s 3.7% climb to $29,900 halted just shy of that psychological price tag — a region that’s proved tough to break out of with conviction for the past two and a half weeks. Bitcoin is currently trading roughly flat on the day at $29,200.



As speculation mounts as to the asset’s direction, some traders have begun to question whether a CME futures “gap” — near $20,000 — is expected to be filled sometime this year.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Will this <a href="https://twitter.com/hashtag/Bitcoin?src=hash&amp;ref_src=twsrc%5Etfw">#Bitcoin</a> CME Gap be filled at $20,000? <a href="https://t.co/NEui6heM9I">pic.twitter.com/NEui6heM9I</a>&mdash; Crypto Rover (@rovercrc) <a href="https://twitter.com/rovercrc/status/1650866753180962816?ref_src=twsrc%5Etfw">April 25, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The substantive distance between $20,300 and $21,100 has some speculating a retest for prices nearer to those levels.



A CME gap for bitcoin refers to a price discrepancy that occurs on the Chicago Mercantile Exchange bitcoin futures chart between the closing price of one trading day and the opening price of the next trading day.



Gaps occur because the bitcoin spot market trades 24/7 on various centralized exchanges, from which CME derives its Mark Price, while the futures market only trades Sunday through Friday, from 6:00 pm to 5:00 pm ET.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="2560" height="993" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=1024&amp;h=1024" alt="" class="wp-image-53745" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=2560 2560w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=80 80w" sizes="(max-width: 2560px) 100vw, 2560px" /><figcaption class="wp-element-caption">CME Bitcoin Futures, daily time frame; Source: TradingView</figcaption></figure>



The significance of a CME gap for bitcoin is <a href="https://www.investopedia.com/articles/trading/05/playinggaps.asp">a topic of debate</a> among traders and analysts.



Some believe that gaps on the CME chart can act as significant support or resistance levels, as prices typically tend to fill the gap at a future date. Others argue that CME gaps are simply a technical phenomenon with no real predictive value.



Still, their appearance on the daily chart tends to be relatively rare, providing further credence to traders looking to derive a directional bias.



One notable CME gap for bitcoin last appeared on Jan. 13 between $20,000 and $20,700. That was later filled on March 10 — <a href="https://blockworks.co/news/silicon-valley-bank-meltdown-has-little-to-do-with-crypto">the day of the failure</a> of Silicon Valley Bank — when prices dipped to a low of $19,520.&nbsp;



Last year, as prices began to collapse from $30,000 to $17,000 in June, a relatively large $1,400 gap formed on June 10, between $28,700 and $27,300. That was recently filled earlier this month when prices drove higher.



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When it Comes to Bitcoin Futures, Do We Need to Mind the Gap?

Jocelyn Yang

<div id="highlights-block_62c7eb6bb4999" class="highlights">
 <ul>
 <li>FTX proposes to let individual investors post margins directly instead of going through a broker</li>
 <li>CFTC is currently considering FTX’s proposal and evaluating public comments</li>
 </ul>
 
</div>



Cryptocurrency exchange FTX is looking to get Commodity Futures Trading Commission (CFTC)’s approval to allow individual investors to use derivatives to place leveraged bets on bitcoin, the <a href="https://www.wsj.com/articles/ftx-presses-for-crypto-derivatives-approval-agitating-legacy-exchanges-11657084236" target="_blank" rel="noreferrer noopener">Wall Street Journal</a> first reported on Wednesday. 



The regulators are currently considering the proposal and could make a decision later this year. If approved, it would mean that investors could deal directly with the cryptocurrency exchange led by Sam Bankman-Fried rather than going through a broker, which could fundamentally change the way the derivatives markets infrastructure and operate.&nbsp;



FTX’s proposal has sparked opposition from competitors and Wall Street firms alike. Terrence Duffy, CEO of Chicago Mercantile Exchange (CME), said the move would create “market risk” during a US Congressional hearing in May. The CME offers a bitcoin derivative product that is designed to compete with FTX’s offerings.&nbsp;



In March, the CFTC opened up a <a href="https://www.cftc.gov/PressRoom/PressReleases/8499-22" target="_blank" rel="noreferrer noopener">public comment request</a> regarding FTX’s proposal for amended derivatives clearing organization registration, and received comments including concerns over customer protection. 



Dennis Kelleher, co-founder, president and CEO of non-profit organization Better Markets, <a href="https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=69463&amp;SearchText=" target="_blank" rel="noreferrer noopener">wrote </a>in a letter that, during the evaluation, the CFTC must ensure “the protection of customers and market participants — and limiting if not reducing systemic risks — remain the paramount concerns.” 



<blockquote class="wp-block-quote">“We believe all investors should have the data, educational tools and a range of financial products available to them so they can make the best decisions possible for themselves,” an FTX spokesperson told Blockworks. </blockquote>



Chris Bae, CEO of digital asset trading firm Enhanced Digital Group, told Blockworks that it is “inevitable” that more sophisticated trading strategies emerge such as the use of derivatives as the crypto market gets more mature.



“We have seen institutional demand for structured products and derivatives being used to better navigate the current market cycle, so it is only natural the retail market will follow,” he said.&nbsp;



“Retail investors&#8217; assets deposited on these platforms should absolutely be senior to equity holders by new or old,” Bankman-Fried said in an interview event at Harvard Business School Club of New York last Thursday, referring to his company&#8217;s rescue move to crypto lenders <a href="https://cms.blockworks.co/ftx-reaches-deal-to-acquire-blockfi-for-up-to-240m/" target="_blank" rel="noreferrer noopener">BlockFi</a> and Voyager. 



Casey Wagner contributed reporting for this story.



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FTX Seeks CFTC Approval on Derivatives Proposal

Sam Reynolds

<div id="highlights-block_6165f6dd0b2dc" class="highlights">
 <ul>
 <li>Bitcoin is up 31% so far in October, blowing past market weighted cap indexes and most other altcoins by a wide margin and pushing bitcoin’s market dominance up to 46%</li>
 <li>Institutional interest in bitcoin continues via CME futures, while bitcoin mining continues to be a profitable investment</li>
 </ul>
 
</div>



The fourth quarter of 2021 is shaping up to be ‘bitcoin season’ as new data from Arcane Research shows market interest — specifically institutional — continues to build around the world’s largest digital asset.&nbsp;



According to data <a href="https://static1.squarespace.com/static/60377b34e7791c1277aaae97/t/61657e8ebe21161e3edb98bd/1634041488063/Weekly+update+-+Arcane+Research+%28Week+40%29+2021+-+Free.pdf" target="_blank" rel="noreferrer noopener">sourced</a> by Arcane Research, bitcoin is up 31% on month during the first two weeks of October blowing past other indexes. Arcane notes that most large-cap coins like Cardano and Binance’s BNB exchange token have been struggling, posting negative returns.



The research firm also noted that bitcoin makes up roughly 40% of the index, and the index’s performance would have been much worse without bitcoin.



<div class="wp-block-image"><figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="512" height="371" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-1.jpg" alt="" class="wp-image-9293" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-1.jpg?w=512 512w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-1.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-1.jpg?w=355 355w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-1.jpg?w=360 360w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-1.jpg?w=302 302w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-1.jpg?w=80 80w" sizes="(max-width: 512px) 100vw, 512px" /></figure></div>



“Historically, when bitcoin has started to outperform altcoins, retail traders have not been late dumping their altcoins for bitcoin, creating a feedback loop that drives the bitcoin price even higher,” Arcane wrote in a note. “The altcoin season might be over for this time.”



And with this market dominance comes renewed interest by institutional investors in bitcoin. <a href="https://cms.blockworks.co/bitcoin-reclaims-55000-on-strong-fundamentals-markets-wrap/" target="_blank" rel="noreferrer noopener">As Blockworks has previously reported</a>, open interest on the institutional-focused CME exchange for bitcoin futures is at a record high. 



Arcane notes that open interest on CME has outpaced that of the bitcoin futures market.&nbsp;&nbsp;



<div class="wp-block-image"><figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="512" height="352" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-2.jpg" alt="" class="wp-image-9294" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-2.jpg?w=512 512w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-2.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-2.jpg?w=374 374w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-2.jpg?w=380 380w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-2.jpg?w=319 319w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-2.jpg?w=80 80w" sizes="(max-width: 512px) 100vw, 512px" /></figure></div>



“Institutional traders are flocking into the CME futures, betting on the approval of a bitcoin ETF backed by CME futures,” Arcane wrote. &#8220;We view this as a healthy signal from the futures market, as rapid growth in [retail driven] Bybit’s OI has previously tended to be a signal of an overextended market, whereas the opposite has been true with growing OI from the CME futures.&#8221;



<h3 class="wp-block-heading">Bitcoin miners hard at work</h3>



The bitcoin mining industry has had a record quarter thanks to a sense of market certainty with the migration of hashing power from China to the US and the established scale of industry players on the continent.



Compass Point, an equity research firm, has consistently ranked Marathon Digital and Riot Blockchain, two of the larger mining companies in the US, as buys due to their sustained profitability thanks to their scale.&nbsp;



In Arcane’s report, the firm estimates that the Antminer S9, used by both Marathon and Riot, is cash flow positive at $34,518 and the S19 is cash flow positive at $48,827.



<div class="wp-block-image"><figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="512" height="364" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-3.jpg" alt="" class="wp-image-9295" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-3.jpg?w=512 512w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-3.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-3.jpg?w=361 361w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-3.jpg?w=367 367w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-3.jpg?w=308 308w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-3.jpg?w=80 80w" sizes="(max-width: 512px) 100vw, 512px" /></figure></div>



“Bitcoin mining has been highly profitable during the whole year. The bitcoin price has increased by 92%, while the hashrate is at the same level as it was last year,” Arcane wrote.



Blockworks has previously reported that <a href="https://cms.blockworks.co/bitcoin-mining-shifts-to-n-america-amid-fee-compression/" target="_blank" rel="noreferrer noopener">declining transaction fees</a> on the digital coin&#8217;s network aren’t hindering miners’ expansion into North America.



“Although fees declining isn’t great for miners, I don’t see this as a long-term issue. We are still so early in the digital asset adoption curve that I think this will iron itself out over time,” Brian Dixon, chief operating officer of research firm Off the Chain Capital, told Blockworks in a previous interview. “Most well-known mining operations are very profitable and can sustain themselves during this period of volatility.”&nbsp;



Kevin Zhang, vice president of business development at Foundry, a Digital Currency Group subsidiary focused on financing and credit for miners, said that fee compression wouldn’t be an issue unless the price of bitcoin doesn’t appreciate — but since then the price of bitcoin has risen from around $47,000 to just over $55,000 with momentum building for a sustained rally in the fourth quarter.&nbsp;



<hr class="wp-block-separator"/>



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<hr class="wp-block-separator"/>

Institutions Are ‘Piling In’ on Bitcoin Futures and Mining

Casey Wagner

<div id="highlights-block_615366b13b4ce" class="highlights">
 <ul>
 <li>Genesis has introduced a trade that will allow investors to lock in exposure to bitcoin futures end-of-day closing price </li>
 <li>Basis trade at index close has long been used in traditional equities markets, but this is the first time that it has been applied to crypto </li>
 </ul>
 
</div>



Genesis Global Capital and Akuna Capital have completed the first ever trade that will allow investors to lock in exposure to bitcoin reference rate (BRR).&nbsp;



The companies have completed the first over-the-counter (OTC) block trade of a basis trade at index close (BTIC) transaction on Chicago Mercantile Exchange bitcoin futures contracts.&nbsp;



BTIC has long been used in traditional equities markets, but this is the first time that it has been made available for cryptocurrencies. It’s a move that will allow institutional investors to buy or sell as a basis to the reference rate, which, for bitcoin, is the US dollar price of one bitcoin as of 4pm London time.&nbsp;



<a href="https://www.cmegroup.com/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html#" target="_blank" rel="noreferrer noopener">BRR</a> aggregates the trade flow of major bitcoin spot exchanges from 3pm to 4pm London time daily. It is intended to serve as a tradable reference rate that marks a type of “end-of-day price” for bitcoin, although the digital asset really trades on a 24/7 cycle. 



“It’s very important for people who are referenced to that benchmark, which is a lot of people, it’s people who traded futures; it&#8217;s people who have ETFs that closed at 4pm London; it’s funds that have to mark their NAV at 4pm London,” said Joshua Lim, head of derivative trading at Genesis.&nbsp; “Over time, more and more people started using it as a reference point, and so it&#8217;s important to have a way to trade that.”&nbsp;



While CME has offered bitcoin futures contracts since 2017 and cash-settled micro futures contracts since March 2021, this new trade offers greater exposure to existing products. Genesis is the liquidity provider for CME’s full suite of bitcoin and ether futures products.&nbsp;



“This is the first time we’re offering BTIC for our cryptocurrency futures and we’re pleased Genesis is able to support and provide liquidity for BTIC on day one,” said Tim McCourt, CME’s global head of equity index and alternative investment products, in a statement. “This is another example of how we’re providing innovative solutions to clients who want to gain exposure to CME bitcoin and ether futures.”



The news comes as <a href="https://cms.blockworks.co/a-futures-based-bitcoin-etf-could-be-suboptimal-heres-why/" target="_blank" rel="noreferrer noopener">speculation about a potential bitcoin futures</a> exchange-traded product continues to mount. When asked about when or if the US Securities and Exchange Commission would approve such a product, Lim did not name a date, but said the increased volatility is expected. 



If approved, there will likely be a significant inflow of the assets into futures-based products, he said. This will cause a lot of distortions on the CME futures curve as people will be forced to trade that particular instrument, as opposed to now, where that instrument does not have significant demand given the high collateral requirements.



“If there&#8217;s an ETF, the AUM on those futures has to increase, the open interest on those futures has to increase, and more people will have to post dollar collateral, which will make funding those positions very expensive,” said Lim. “We&#8217;re very interested in seeing how that plays out, because that will result in the futures sort of trading at even higher premiums than they currently do, relative to spot.”