Investment bank JPMorgan in a new report drew attention to the higher profitability of bitcoin futures compared to traditional currencies. The overpayment is associated with risks characteristic of cryptocurrencies, however, the approval of a Bitcoin ETF in the United States will reduce such risks and, at the same time, the profitability of futures, the bank experts say. These events may have more distant consequences for the cryptocurrency industry.
Analysts found that Bitcoin futures outperform all major fiat currencies, gold and silver. For regulated Bitcoin futures, the yield is 25% per annum, and on offshore exchanges like Binance and Huobi, it can exceed 40%. The only asset close to bitcoin in this regard is the Turkish lira, but “with inflation of 10% or higher, which bitcoin opposes with deflationary monetary policy and the ability to move across borders, it can hardly be considered a viable alternative.” This is a “Cash-and-Carry” strategy, when a trader buys an asset on the spot market and sells it on the futures market, thus taking advantage of the price difference.
JPMorgan believes that the high profitability of bitcoin futures is due to the high cost of financing for institutional investors and difficulties in determining the price of cryptocurrency. For example, the Chicago Mercantile Exchange (CME) – the main regulated platform for trading cryptocurrency futures – takes the price of bitcoin from several exchanges. It turned out that over the past year, on average, its measurements were erroneous by 2% per day, and added together for a year – by 10%.
Other traditional mechanisms for investing in bitcoin are highly volatile. Shares of the largest Bitcoin trust of its kind, Grayscale, with assets worth $ 40 billion, have been trading below the price of the corresponding share of bitcoin for more than a month.
“Under these conditions, a significant premium can be expected to be included in the price of bitcoin futures,” writes JPMorgan.
The approval of a Bitcoin ETF will result in a reduction in this premium and hence in profitability. Such a tool will track the price of the cryptocurrency much more accurately, since traders themselves will be able to issue / cancel shares in case of price fluctuations. In addition, it will be easier for primary brokers to accept ETF shares as collateral. In other words, investors who do not have direct access to Bitcoin and are now forced to overpay will be able to place bets on the future price of the cryptocurrency much easier and cheaper.
Separately, analysts pay attention to the relationship of the bitcoin derivatives market with the space of decentralized finance (DeFi), namely with crypto lending services. Bitcoin loan rates are often in the double-digit range. Clients agree to such terms as their income exceeds expenses. At the same time, JPMorgan notes that it is not yet clear how the DeFi industry will react to the fall in futures yields. The experience of Chinese payment systems shows that consumer participation is a more reliable driver of the flow of funds than any external factors.
ZeroHedge writes in this regard:
“The conclusion, paradoxically, is that the crypto industry and its DeFi offshoot have found an ideal niche in which they thrive precisely thanks to the SEC’s refusal to approve a Bitcoin ETF. If JPMorgan is right and the SEC drastically changes its position by approving one or more Bitcoin ETFs, the primary consequence could be a significant increase in demand. This will be followed by a normalization of the yield curve, which could be very disruptive, especially for the DeFi space, which has experienced explosive growth this year. “
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