JPMorgan: Bitcoin ETF Could Dampen Yield on Bitcoin Future

In short

  • An analysis by JP Morgan found that Bitcoin’s futures product outperformed all major fiat currencies.
  • But the introduction of Bitcoin ETFs in the US is likely to lower Bitcoin futures yields.

Bitcoin offers a higher yield than fiat currency in futures trading. But pricing risks and errors make up much of that premium and a Bitcoin ETF in the US it could reduce earnings, research by investment bank JP Morgan shows.

Bitcoin futures contracts are derivatives that allow people to buy Bitcoin at an agreed future price. If you sign a contract to buy Bitcoin at the end of the year for $ 100,000, your hope is that the price of Bitcoin would exceed the December 31 price.

According to a research note from JP Morgan analysts, Bitcoin futures market outperforms all major fiat currencies, as well as gold and silver. While most fiat currencies offer an annual yield of around 5%, the The future of Bitcoin the market offers an annual yield of 25%.

Analysts found that apart from all the hype surrounding Bitcoin and the penny volatility, the yield of future Bitcoin contracts is so high because it is difficult for futures markets to garner Bitcoin price and expensive for institutional investors to finance their positions.

The Chicago Mercantile Exchange (CME), the premier trading venue for Bitcoin futures settling trades in cash, is grabbing the price of Bitcoin from several different exchanges. But this price was wrong to the tune of 2% a day on average, found JP Morgan. The errors add up to about 10% a year, he said.

In addition to pricing errors, it is difficult for institutional investors to access Bitcoin on regulated markets. CME and the Rated Bitcoin Trust, a closed-end trust that manages close to $ 40 billion, is all really investors.

And these trusts, often invested by institutional investors hedge against Bitcoin futures prices, also trading at very volatile prices that stray from the price of Bitcoin. Shares in Grayscale trust have sold at a discounted price to Bitcoin for over a month. “In those circumstances, one should expect a significant risk premium priced into the future,” said the financial analysts.

Enter Bitcoin ETFs

So, what could bring down the Bitcoin futures premium? “Listing Bitcoin ETFs tracking random exchange rates in the US or other major jurisdiction would likely be a major catalyst,” the analysts found. Bitcoin ETFs would be a regulated fund that sells shares that track the price of Bitcoin far more accurately, theoretically, than the future of CME or the Grayscale fund.

“It would probably also be easier for top brokers to take those securities as collateral,” the analysts said. All of this means that it would be cheaper to bet on the price of Bitcoin in the future, reducing some of that premium but increasing demand.

It all sounds peachy, but the US Securities and Exchange Commission has thrown away all bids for Bitcoin ETFs, citing a manageable market. However, with a new administration, chair of the SEC and renewed institutional interest, applications are on the rise and are being revisited by the SEC.


The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.