Bitcoin futures market has a greater impact on the price than the spot market

A new report from investment firm Wilshire Phoenix claims that the Chicago Mercantile Exchange’s (CME) cash-settled Bitcoin futures trading products can influence the price of Bitcoin even though they do not directly involve actual Bitcoin (BTC).

“Wilshire Phoenix’s findings suggest that CME Bitcoin futures contribute more to price discovery than their underlying spot markets,” a Wilshire Phoenix report said on Oct. 14, adding:
“A leading futures market suggests that there is a strong base of traders who may trade in such markets for many reasons, such as trust in the trading venue and lower latency.”
Price discovery essentially refers to how every actual Bitcoin is valued in the market — its going market price, or spot price. Wilshire’s report essentially found that these CME products have a greater impact on BTC prices than the actual BTC itself, which trades on crypto-native exchanges.
CME's Bitcoin futures, which launched in December 2017, do not deal in spot Bitcoin. Participants trade contracts that track the price of Bitcoin on the crypto market, paying out the contracts in U.S. dollars when they expire. The payouts for these contracts are based on a price index called CME-CF-BRR, which is composed of the price of BTC based on the values ​​of many spot crypto exchanges, called constituent exchanges. CME's futures products have attracted a great deal of interest in the years since their launch.
Although CME’s Bitcoin futures trading is conducted exclusively in cash, crypto traders and participants still pay attention to its price action, especially chart gaps, commonly referred to as “CME gaps.”
Based on the 24-hour trading schedule for spot BTC, these gaps occur when spot BTC opens the next trading day above or below the previous day’s close compared to the product’s operating hours set by CME. Bitcoin’s spot price is known to return to any gaps left on the price chart.
Another thing worth noting is that the CME report also mentions a more detailed aspect compared to the futures volume in the CME report: the average volume in the spot market is added to the CME report, which is more important:
“In terms of price discovery, the relative number of small trades in a given market is often statistically insignificant. The average trade size in the CME futures market helps it lead the constituent exchanges in price discovery.”
The report also noted that the existence of other mainstream futures markets influences spot prices of other asset classes, so the findings are not an anomaly.
“There are 85 institutions holding open positions in Bitcoin futures, which is comparable to other CME futures open interest in major currency markets such as the Swiss franc, U.S. dollar index, and Fed funds,” Alexander Chang, partner at Wilshire Phoenix and co-author of the report, told the media.