In the first quarter, the Bitcoin futures curve was flat, presenting signs that it had entered a backwardation state, as shown in a study by Element Group, an advisory firm catering to the digital token capital markets.
Element evaluated Bitcoins patterns from when the first futures contract started trading in December 2017 and compared them with data beginning from the end of March 2018. The downward curve found strongly implied that there was little conviction in the Bitcoin marketplace, with the current spot price surpassing the expected futures spot price.
Part of the research paper said:
“The majority of futures trading today is likely being done for hedging and risk management purposes, rather than for speculation. We also believe that market makers who take on the other side of a speculator shorting futures have a desire to be paid for that risk, given Bitcoin’s high volatility. This payment for risk will usually show up as a deep discount to spot.”
The CBOE officially launched Bitcoin futures trading on December 10, 2017, a move soared the cryptocurrency price. The CME Group followed suit within a week, assisting Bitcoin futures for January to reach more than $19,000.
Previously, it was expected that the futures would spark more mainstream interest in cryptocurrencies, attracting not only hedge funds and rich individuals but also retail investors.
However, the researchers said their deeper analysis of the various segments of Bitcoin traders has revealed that large digital currency holders, both Bitcoin, and infrastructure buyers, “are willing to sell contracts at current spot price or even lower.” As reported by the analysts, investors do this to protect themselves from downside risk.
Element co-founder and CEO Stan Miroshnik commented:
“Given that Bitcoin has only been trading for a few months, the ‘normal’ state of the markets has yet to be determined, and an efficient lending market for cryptocurrency does not yet exist. Identifying and analyzing the initial trends in this largely uncharted and volatile sector is critical to creating a sustainable and lucrative next generation of capital markets.