JPMorgan says that the widening gap between the Bitcoin spot price and the futures price is an indication institutional investors are yet to fully access the cryptocurrency market.
As Bitcoin breaks above the $60k level comfortably, Basis trading continues to widen in most cryptocurrency exchanges. A new report by JPMorgan Chase & Co (NYSE: JPM) indicates the launch of Bitcoin exchange-traded funds (ETF) in the United States will be a key in normalizing the Bitcoin futures market.
“Launching a bitcoin ETF in the US will be the key to normalizing the pricing of bitcoin futures, in our view,” the US bank’s analysts wrote in an April 9 report. Moreover, the bank noted that the June Bitcoin contract listed on the CME recently traded at a 25% annualized premium.
According to market data provided by Skew, Bitcoin’s June expiry futures listed on major cryptocurrency exchanges such as Binance, Huobi, OKEx, BitMEX, and Deribit are currently drawing an annualized premium of 44% to 48%.
“With the premium on bitcoin futures expanding to as high as 40% per annum for the June expiry, there is a lot of interest from cash and carry traders to arbitrage the premium and lock-in risk-free gains,” Pankaj Balani, co-founder and CEO of the Singapore-based Delta Exchange
JPMorgan Opinion on Bitcoin ETF and Futures Market
In the report, JPMorgan noted that the widening gap between the Bitcoin spot price and the futures price is an indication institutional investors are yet to fully access the cryptocurrency market. According to the bank, institutional investors are prohibited from accessing the crypto market by regulatory restrictions.
As a result, most institutional investors access the cryptocurrency market through exposure from the CME futures or the Grayscale Bitcoin Trust. However, some institutional investors are not ready to be exposed to the highly perceived crypto volatility especially fueled by speculative trading.
A Bitcoin ETF could trigger a huge influx of institutional money to the crypto market that would in turn help stabilize the spot trading. Consequently, the difference between the futures and the spot trading is expected to decline and normalize according to JPMorgan analysts.
“Over a longer horizon, using just Coinbase prices, the monthly tracking error of BRR versus 4 p.m. LST mids has at times been 2% or higher over the past year. Backtesting the performance of basis trades [carry trades] against spot levels as of the same time results in an annualized tracking error of more than 10% over the past year,” JPMorgan analysts noted. “The richness of bitcoin futures likely reflects in part inefficiencies in replicating the BRR to which they settle, particularly without direct access to the spot market.”
Bitcoin price has broken out of a major resistance level and was trading around $62,732.97 according to CoinGecko at the time of reporting. The asset is up 4.2% in the past 24 hours and has seen its market capitalization spike to around $1.17 trillion.
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