Digital Currency Revolution Series: Trading Strategy To Attain Disparity Between Bitcoin Spot And CME BTC Futures

Bitcoin price (at Coinbase) has surged more than 42% from the last 4-5 days (refer 1st chart).

While BTCX2019 (CME Bitcoin Futures) price has also jumped above $10k mark with a gap-up formation with the mounting volumes in BTC derivatives contracts as well (refer 2nd & 3rd chart). But, the futures price dropped a bit upon shooting star formation that was traced out yesterday at $9,630 levels. 

The underlying price of BTCUSD (at Coinbase) now shows resilience which is quite different from its CME price BTC Futures action. Currently, BTCUSD spot is trading $9,434 levels, whereas, BTCX2019 is trading at $9,545 level (at press time).

After break out of prolonged range-bounded trend, the pioneer cryptocurrency has finally closed above $9k mark 4th consecutive days in a row. 

Technically, we traced out hammer and bullish engulfing pattern candles at 7,515 and 7,630 levels respectively, consequently, you could see gap-up formation on CME Bitcoin Futures price chart which was expected to fill-in as shooting star hampers buying momentum as expected.

But for now, the underlying price of BTCUSD is taking support at 21-SMAs (i.e. $9,379) and bounced back above $9,450 levels.

This indicates a cascading price effect on crypto derivatives markets, as a result, the strong short squeeze as short-sellers are tend to cover their positions.

While quite a few aggressive traders were caught off guard by the move. The thin nature of the Bitcoin derivatives market and lack of protections offered on most trading platforms exposed many bears when the markets turned bullish. The price accelerated upwards as more bears scrambled to cover losing positions.

The CEO of CoinFLEX, Mr. Mark Lamb has projected for the 20X the size of the underlying spot BTC market by the end of 2020, amid the recent constrictive developments.

Overall, as we could foresee upside traction in the underlying price of BTCUSD, long hedges were advised in our recent posts.

With a view of participating in ongoing rallies, those who inclined for long positions, at spot reference: $9,545 level we advocated longs in CME BTC Futures of November’2019 month deliveries, we now wish to uphold these positions on trading grounds as well for the target up to $10,605 level with a strict stop loss at $9,280 level, thereby, one can achieve attractive risk reward ratio of 1:4.