Trends in Bitcoin and Ethereum Futures on CME: What Are Traders Expecting?

• Typically, futures markets are in a state called “contango,” where futures trade at a premium to spot, and an increase in buying pressure often widens contango.
• K33 Research analyst Vetle Lunde stated, ‘This indicates a very bullish trend on CME and a strong desire to add long positions, causing return premiums to rise.’
• The weekly spread between trailing and front-month BTC and ETH contracts has widened to 1.5% annually, the first such pattern since the recent 2021 bull market days.

What do the signals seen in Chicago Mercantile Exchange (CME) Bitcoin and Ethereum futures indicate?

Latest Situation in CME Bitcoin and Ethereum Futures

A recent rare pattern in the futures market associated with Bitcoin (BTC) and Ethereum (ETH) on the Chicago Mercantile Exchange (CME) suggests a significant increase in taking long positions or making leveraged bullish bets on leading cryptocurrencies.

A futures contract is a legal agreement to buy or sell an underlying asset at a predetermined future date at a specified price, with this date known as the expiration date. Typically, futures markets are in a state called “contango,” where futures trade at a premium to spot, and an increase in buying pressure often widens contango.

BTC and ETH futures have recently experienced the same situation, with the weekly spread between the “front month” contract and the “next month” contract trading at a significant premium, according to data tracked by K33 Research. This situation is a rare occurrence since 2018. The front month contract refers to the one whose expiration date is closest to the current date, while the next month contract is the one that comes after it.

K33 Research analyst Vetle Lunde stated, ‘This indicates a very bullish trend on CME and a strong desire to add long positions, causing return premiums to rise.’

Considered CME futures are of sizes five BTC and 50 ETH, respectively. At the time of writing, December futures contracts can be considered front month contracts, while those expiring in January represent the next month’s contracts. November contracts expired on Monday.

The weekly spread between the last and next month BTC and ETH contracts has widened to an annualized 1.5%, the first instance of this magnitude since the bullish market days of 2021.

This pattern has only occurred four times to date, with three instances during bullish markets and one just before the collapse caused by the coronavirus in March 2020.

According to Lunde, contango slightly narrowed in both markets on Monday but still indicates a bullish market. He stated, ‘Yesterday, there was a significant narrowing in contango. 7,000 BTC worth of open positions were closed in the December contract, and a similar pattern was cleared for ETH following last week’s record-setting nominal open interest accumulation.’

Lunde added, ‘Return premiums continue to remain in double digits, indicating a sustained bullish sentiment on CME.’

Influence of traditional finance players

Huf, the co-founder of Protocol, said that contango has expanded recently due to traditional market players making bullish bets. This situation demonstrates that TradFi (Traditional Finance) has a vulnerable position, possibly resolving during any potential uptrend toward spot ETF approval but not through the spot itself, he added.

Huf mentioned that high future premiums might lead to a renewed interest in basis trades or cash and carry arbitrage. This strategy was one of the most favored during the bull run of 2020-2021, allowing traders to capture premiums while bypassing price volatility.