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Bitcoin Short Shortage Keeps Crypto Futures Wobbling Above Spot

For traders used to seeing arbitrage plays vanish within seconds, bitcoin futures’ rise back to more than $1,300 above the spot price a full day after their debut is another testament to the cryptocurrency’s unconventional evolution.

Professional investors and analysts predict the premium will collapse over time. Yet its persistence and volatility — from as low as 1.8 percent to as high as 13 percent — indicate how a market that’s captured Wall Street’s attention can still be slow to homogenize. There are many impediments to closing the gap, but it’s not impossible. Watching the premium may be just the latest fleeting obsession of traders.

“For the moment, this premium can be sustainable — but if brokers stop filtering shorts, it could come crashing down dramatically,” Robin Bhar, a commodities analyst at Societe Generale SA, said by phone. “It’s almost as if the normal rules don’t apply here. It would be analogous to a physicist finding a situation where gravity doesn’t apply.”

The premium is enduring for a couple of reasons.

Typically, traders bet that two strongly correlated assets will eventually converge toward the same price. They make money by selling the more expensive asset short and buying the cheaper one, sometimes delivering it in place of the borrowed asset they need to replace.

But the future now trading on Cboe Global Markets Inc.’s exchange is settled in dollars, not with the delivery of bitcoins, which impedes shorting. Position limits and a bar on block trades also pose obstacles. A trader “may not own or control more than 5,000 contracts net long or net short” in all futures expirations, and block trades won’t be permitted until Dec. 17, according to the contract specifications.

Furthermore, traders “cannot arbitrage between various exchanges,” Robin said, further limiting short-selling opportunities.

That the spread has persisted to the degree it has is a function not only of trading obstacles, but also of bitcoin euphoria, according to Ole Hansen, head of commodity strategy at Saxo Bank A/S in Hellerup, Denmark.

“This is a consequence of irrational exuberance and the fact that some brokers so far are not allowing short trades in the future,” Hansen said by email. “For this to become a reasonably functioning market the gap between spot and futures should come down.”