There’s a small ripple effect from Archegos Capital’s multi-billion dollar fallout on the crypto world, which is reflected in the Bitcoin futures premium on CME. However, the crypto market is largely untouched.
The recent Wall Street crisis includes rapid risk reduction triggered by the trade crisis at Archegos Capital, a family office that manages at least $ 10 billion and leverages $ 50 billion to $ 80 billion, resulting in losses of $ 10 billion Almost $ 5 billion for Swiss Credit Suisse resulted in the departure of its investment banking boss this week.
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Chicago-based CME, which offers traditional financial players bitcoin exposure through its popular futures contract, may be slightly affected, as indicated by the CME futures premium or the price in futures contracts minus the current spot rate. This premium lagged behind the corresponding premium on popular retail exchanges such as Binance, Deribit, FTX and OKEx.
According to a top investor in the crypto industry, the discrepancy could mirror Wall Street deleveraging.
“We see leverage everywhere in traditional finance,” Jeff Dorman, chief investment officer for digital assets investment firm Arca Funds, told CoinDesk in a telephone interview. “The CME primarily serves your typical large hedge funds, large mutual funds, and leverage is less than that of prime brokers and exchanges because of this leverage” in traditional markets.
On the CME, the annualized Bitcoin futures premium rate, the gap between the long-term futures contract prices of Bitcoin and the current spot market price, averages 8.67%. That equates to a range of 27% to 31% on crypto exchanges, including FTX, Deribit, Binance and OKEx, according to Skew, a data provider for crypto derivatives.
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The difference between the Bitcoin futures premium on CME and other crypto exchanges has widened since the end of March when the problems surfaced at Bill Hwangs Archegos Capital.
Patrick Heusser, a leading cryptocurrency trader at Crypto Broker AG in Zurich, explained that the futures premium is sometimes a function of the demand for leverage from traders on an exchange.
In a bull market like this, “those long leverage traders are willing to pay the premium and cost of leverage,” Heusser said. Because “there isn’t much leverage you can put on the CME, the future premium is not that high or high” compared to other platforms.
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In theory, the futures premium on CME should be lower than on other crypto exchanges due to the more restrictive trading rules and limited leverage, Heusser added.
Another explanation is that the premium on the crypto exchanges has risen since the end of March because traders have optimistic views on Bitcoin.
There are “likely overconfident traders and more leveraged longs,” says Bendik Norheim Schei, head of research at Arcane Research. “Traders expect higher prices and take long positions.”
Traders on exchange-oriented crypto-derivative exchanges “are already in the crypto ecosystem,” said Dorman. “It’s just a completely different investor base and a completely different leverage base. So what has happened is that you still have really aggressive investors in the crypto world who are committed to buying as much risk as possible. “