Investigating whether the CME bitcoin futures expiration day has any influence on bitcoin returns, price volatility and trading volume.
April 25th, is the last trading day for this month’s CME bitcoin futures contract. Expiration-day effects in traditional markets have been extensively covered in the financial research literature, but less research has been done on this topic for bitcoin.
Is there any effect of the CME expiry day on bitcoin’s price, volatility or volume? Read on to find out more.
What is the CME Bitcoin Futures Contract?
The CME bitcoin (BTC) futures contract was introduced in December 2017 and allows institutional investors to get exposure to the leading cryptocurrency. These futures are cash settled, meaning that contract holders do not have to take physical delivery of BTC on expiry, allowing investors with dollars to trade bitcoin.
One contract is equivalent to 5 bitcoin and the maximum position is 4,000 contracts (amounting to 20,000 bitcoin). Trading is terminated on the last Friday of each month at 4pm London time. If that Friday is not a business day in both the UK and the US, trading terminates on the preceding day that is a business day for both the UK and the US. The last day of trading for each monthly contract can be found on barchart.com.
Before the last day of trading, traders can either roll their contract into the next month, hold until expiry or they can exit the position before the expiry date. The CME’s CF Bitcoin Reference Rate (BRR) is used for settlement, which takes prices from the top spot exchanges at termination. This price is then used to settle any closed contracts shortly after expiration day.
The CME bitcoin futures contract has shown steady growth in volume over time. Professional traders can use these derivatives to engage in arbitrage, hedge their bitcoin holdings or trade the contracts to profit from fluctuations in BTC-USD.
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