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Why Are Bitcoin Futures Trading for Higher Prices than Bitcoin Itself?


Dec 14, 2017 Posted /  1832 Views


Why Are Bitcoin Futures Trading for Higher Prices than Bitcoin Itself?

Considering a competent and effective marketplace, it is expected that prices of the futures and spot markets will consolidate on the similar grounds. However, Bitcoin futures is trading at above 10% premium in contrast to prices in the spot market.

Chances in Arbitrage

In a well-organized and professional market, arbitrageurs find price variations and make contra-trades, generating returns without enduring much risk. In this scenario, arbitrage traders can vend Bitcoin futures and purchase Bitcoins in the spot market, securing profit without considering the manner in which Bitcoin's price has rallied. According to the data provided by Bloomberg, Bitcoin futures have overengaged a premium of 13% ever since trading commenced on CBOE this Sunday.

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Chairman and CEO of CBOE, Edward Tilly in an interview to Bloomberg stated that Arbitrage has the potential to near the gap, but it can take some days or even weeks. He stated that it was less than 12 hours that they were trading, which helped them to learn. Edward Tilly also remarked that there was a fabulous deal from a liquidity-price point of view and gap will near over time.

What about Spot price?

Arbitrage can provide prospects in an ideal market. But the market in which Bitcoin is operating is far from efficient. You will find price disparity, variations on different exchanges in diverse countries, for instance, Bitcoin trading requires a huge premium in Asia and some countries in the African continent. In spite of this, traders are not capable of taking benefit of the price difference, because of regulations and financial controls imposed by various governments.

With the price differentiation and considerable variations at diverse exchanges, it is significant to contemplate the reference rate utilized in the futures contracts. The CBOE futures contract is centered on the exchange rate with reference to Gemini, while the CME futures contract is founded on an index of numerous exchanges. The anticipated Nasdaq Bitcoin futures contract can recognize with Bitcoin's price with reference to over 50 sources.

Circuit breakers

The existence of circuit breakers furthermore epitomizes a distinction between the spot and the futures marketplaces. When Bitcoin started in the CBOE market, two circuit breakers were activated, which resulted in a halt of buying and selling of the currency for a few minutes. Additionally, there was approx. 2-minute freeze and at that time the price gained 10%. Similarly, in a 5-minute halt, it gained 20%. The immense amplification in the worth of Bitcoin futures has almost led to a third circuit breaker getting triggered which means 30% gains.

The soaring margin necessities, the existence of circuit breakers and developing nature of Bitcoin futures could altogether make one rationale as to why traders have not hurried into Bitcoin futures. The opportunities presented in the arbitrage trading can sometime in future persuade some to plunge themselves in the Bitcoin futures quite soon.


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Tags: Bitcoin Futures bitcoin Bitcoin Price

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