Bitcoin Futures Market Analysis & FAQ

Bitcoin Futures

Bitcoin and cryptocurrencies have taken the trading world by storm, stealing headlines, continuing to push higher highs and gaining the attention of investors worldwide.

On December 17th, 2017 the Chicago Mercantile Exchange launched Bitcoin Futures on the CME Globex. Since its inception, CME Bitcoin Futures (BTC) have been a volatile market closely resembling its underlying product, Bitcoin.

With over a month of trading data available since its introduction, here are a few key takeaways:

Bitcoin Bears

The below chart showcases the daily BTC Futures price action for 20 trading days, or roughly one month. It’s clear the cryptocurrency kicked off its CME debut a downward trend. A potential factor that triggered the bearish beginning is the notion that short selling was never an option until Bitcoin was tradable on an exchange.

Bitcoin Chart

Daily volume averaged 980 contracts per day. By comparison, the daily volume for the E-mini S&P 500 contract over the last 12 months, arguably the most popular futures instrument, is 135,000 contracts per day.

This lull in initial interest could be attributed to the fact that Bitcoin Futures were launched in the midst of the holidays and that BTC’s initial availability was limited to a small number of brokerages. High margin requirements coupled with the lack of a “Mini” BTC contract likely limited interest from a number of traders as well.

Low Liquidity

Because BTC Futures are new to the exchange and experience periods of high volatility, the cryptocurrency has lower order book liquidity and a wide Bid/Ask spread, subjecting the instrument to wide swings. One of the principle benefits of trading futures is they are traditionally highly liquid markets making it easy for traders to execute trades of virtually any size without substantial changes in price.

Examining the Bid/Ask information on a NinjaTrader SuperDOM can add clarity when trading low liquidity markets. Below is a breakdown of the price data.

Bitcoin Futures

  1. Bid Price – 9855
  2. Ask Price – 9930
  3. Last Traded Price – 9875

The Bid/Ask Spread is the difference between 9500 and 9930, or 15 ticks. The tick value for BTC Futures is $25 making the spread $375 (15 ticks x $25). If a trader placed Buy Market order, they would be buying from the best asking price at 9930. The traders PnL would automatically show a 15-tick loss because the Bid price would need to exceed the entry price to get into positive territory. Executing Limit Orders is a potential solution to overcome spread deficits.

Additionally, note that the last traded price is not at the Bid or Ask which is very uncommon in more liquid futures markets. This anomaly can be attributed to the lag of new trades and demand at the bid or ask. Once a new trade occurs, the last traded price will move to indicate the next traded price.

High & Low Limits

A factor to incorporate into the technical analysis of extremely volatile instruments like Bitcoin Futures is Limit Prices. Limit High and Limit Low prices are set by the exchange and dictate thresholds that prices cannot breach. The prices are updated by contract and available on the CME Website. Making a note of an instruments High and Low limits on your chart can prove to be valuable during large price swings.

Bitcoin Futures FAQ

Due to the popularity and unfamiliarity of cryptocurrencies, the NinjaTrader Brokerage Trade Desk has received a number of questions from the NinjaTrader Community. Below is a selection of the most popular questions.

Q: What is the per tick PnL for 1 contract of BTC?
A: $25 per tick, per contract.

Q: How many Bitcoins is 1 contract of BTC worth?
A: 1 contract of BTC is worth 5 Bitcoins.

Q: What is the Expiry Schedule for BTC?
A: BTC Trades in monthly contracts. Currently the most traded front month is January 2018. BTC 01-18 is how the instrument is displayed in NinjaTrader. Because BTC trades in monthly contracts, the next front month will be February 2018, or BTC 02-18.

Q: Is the BTC the only cryptocurrency futures option?
A: No, there is the CME Bitcoin Futures (BTC) and the CBOE Bitcoin Futures (XBT). However, the BTC has drawn the most client interest among the NinjaTrader Community.

Do you have additional questions about Bitcoin or cryptocurrencies? Let us know! Send your question or suggestion to the NinjaTrader Trade Desk today!