What is BTIC?
Basis Trade at Index Close (BTIC) allows market participants to trade futures at a fixed spread to the reference price of a known benchmark index.
Watch this 4 -min video to learn more about BTIC Bitcoin Futures
How does BTIC work?
BTIC orders and transactions have their own unique tickers, providing market participants price discovery and transparency on the spread between the price of the futures contract and the underlying index throughout the trading day.
For cryptocurrencies, the value of the spread depends on the futures implied financing rate, the time left to contract maturity, and perceived volatility among other factors. The spread can either be negative or positive.
Once the official reference rate is published, the resultant futures of the BTIC transaction are cleared at a price equal to the reference rate and the agreed upon BTIC trade price.
BTIC transactions completed by 4:00 p.m. London time will use that trade date’s Reference Rate to calculate the corresponding futures price while those BTIC transactions completed after 4:00 p.m. London time will be against the next trade date’s Reference Rate.
BTIC Bitcoin Example
At 9:00 a.m. New York time/Eastern Time (ET), a Bitcoin-focused fund manager receives an inflow of $5 million dollars which needs to be allocated to the benchmark CME CF Bitcoin Reference Rate (BRR) for that day.
With Bitcoin futures trading at $60,000 per Bitcoin, the trader calculates that the fair value of the spread between Bitcoin futures and the BRR is plus $100 per Bitcoin. She submits an order to buy 25 Bitcoin futures contracts via BTIC at that basis of plus $100 dollars based on that day’s Bitcoin Reference Rate.
At the same time, a trader on a crypto lending desk realizes he could save money by replacing his short physical Bitcoin position with CME Bitcoin futures. He calculates that he needs to sell those futures at a basis of plus $100 dollars per Bitcoin or higher.
Having sold the futures via BTIC, the crypto brokerage can purchase $5 million dollars’ worth of Bitcoin in the OTC spot market against the BRR for that day to transpose his short physical Bitcoin position to futures. Now the BTIC is complete.
The fund manager was able to expeditiously and efficiently gain exposure to Bitcoin’s price while the crypto lending firm was able to shift their Bitcoin exposure from the physical market to more capital-efficient futures. Shortly after 4:00 p.m. London time, the official BRR level of 60,500 is published. The trade is now settled.
The fund manager buys 25 Bitcoin futures contracts for $60,600 which is a plus one-hundred basis to the BRR level, and the crypto lending desk sells them at the same price.
This illustrates how some crypto market participants may use BTIC, and how the mechanism can provide traders the ability to optimize their holdings between Bitcoin futures and physical Bitcoin.
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