Event-Driven Strategy using Bitcoin Weekly Futures
CME: Bitcoin Weekly Futures (
BFF)
On Thursday, October 10th, The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2% on a seasonally adjusted basis, the same increase as in August and July. Over the last 12 months, the all-items index increased 2.4% before seasonal adjustment.
However, the headline CPI came in ahead of the 0.1% monthly gain and 2.3% year-over-year rate expected by analysts polled by Dow Jones. As a result, both the US equity markets and cryptocurrencies slipped on Thursday.
While the year-over-year headline CPI is the lowest since February 2021, digging into the category data reveals sticky inflation. Noticeable data includes:
• Food: +2.3% YoY. However, Eggs jumped 39.6%, while “nonconcentrated juices + soft drinks” category was up 15.3%.
• Motor vehicle insurance: +16.3% YoY
• Video discs + other media: +11.6% YoY
• Admission to sporting events: +10.3% YoY
• Health insurance: +7.5% YoY
High prices affect day-to-day life and contradict the notion of low inflation. The fact is that prices have gone up a lot in the past few years. Even though they rise more slowly now, the absolute price levels remain high. Examples from my personal experiences:
• The $9 price tag for 1-1/2 dozen eggs caused me to reduce purchase to 1-dozon for $5. I still remember the good old days of 99-cent per dozen large eggs.
• I watched a WNBC match featuring Indianapolis Fever and Catlin Clark in the summer. A seat close by the basketball court costs $200. Adding up hotel stay, fuel cost and a $50 T-shirt, this felt like a vacation budget.
• A recent doctor’s visit required copayment of $100. Six months ago, the same clinic charged $75. This is a 33.3% increase.
Event to Watch: The Next Fed Rate Decision
Retrospectively, it appears that the Federal Reserve acted a bit too aggressively with the supersized 50-bp rate cut in September. With the sticky inflation data, the Fed’s next move on November 7th is uncertain.
According to CME Group’s FedWatch Tool, as of October 11th, the futures market expects the Fed to cut 25 basis points at the next FOMC meeting, with an 88.4% probability. Gone are the odds of another supersized cut. Meanwhile, the probability of a no-cut increases to 11.6%.
cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
Driven by the lowered expectation on Fed rate cuts, on Thursday, the Dow Jones Industrial Average closed down 0.14% to 42,454, and the S&P 500 slipped 0.21% to settle at 5,780. Meanwhile, the Nasdaq composite shaved up 10 points (-0.05%) and closed at 18,282.
The cryptocurrency market has a more pronounced reaction. Bitcoin gave up the psychologically important 60K level, lost $1,442 (or -2.36%) and settled at $59,564. Meanwhile, ETHER gave up $57.2 (or -2.38%) and closed at $2,356.
However, market sentiments are still very bullish. By Friday, strong Q3 earnings reported by JPMorgan and Well Fargo helped push the stock market up again, with the S&P 500 breaking 5,800 and making its 45th all-time high in 2024.
In my opinion, Bitcoin futures would be a good instrument for event-driven trades on the Fed rate decisions, given its higher volatility.
Introducing Bitcoin Friday Futures
Bitcoin Friday futures (BFF) are weekly, USD-settled contracts that offer a more precise way to gain bitcoin exposure and manage risk relating to such exposure. Each contract represents 1/50 of a bitcoin, ensuring capital efficiency and accessibility. The contract size of BFF is 1/5 of that of Micro Bitcoin Futures (
MBC), which is 1/10 of a Bitcoin.
These shorter-dated contracts expire and settle to the CME CF Bitcoin Reference Rate New York Variant (BRRNY) every Friday at 4:00 p.m. New York time and may track the spot price of bitcoin more closely.
Futures contracts traditionally expire on a monthly or quarterly basis, such as BTC and MBT, whereas BFF will settle weekly every Friday. Because of this shorter duration, BFF will have a shorter cost of carry resulting in a price that may more closely track bitcoin’s spot price.
Bitcoin futures price = bitcoin spot price + financing costs to carry the position to expiration
Two consecutive Fridays will be listed at any time. A new BFF contract will be listed every Thursday at 6:00 p.m. New York time such that market participants will be able to trade the nearest Friday plus the next two Fridays giving traders the choice to hold or not hold exposure over the weekend depending on their preference.
Trade Setup using BFF for the FOMC Event
The Federal Open Market Committee will release its next rate decision at 2:00 PM Eastern Time on Thursday, November 7th.
The BFF contract expiring Friday, November 8th will begin trading at 6:00 PM Eastern Time on Thursday, October 24th.
A trade could be set up on or after October 24th, and closed by November 7th or 8th, after the market reacts to the Fed decision and before contract expiration.
While the market overwhelmingly expects the Fed to cut 25 bps, new data could change the expectations dramatically in the next four weeks. The most important data points are:
• BLS Nonfarmed Payroll and Unemployment, November 1st
• US Presidential Election, November 5th
Separately, the next BLS CPI release will be on November 13th, after the BFF November 8th contract. We could use the BFF November 15th contract to trade on that event.
As an educational writeup, I do not offer a personal view on the future direction of BFF prices. With basic information provided here, traders could apply their own view to set up a trade on BFF.
Generally, if the Fed cuts rates in December, stocks and cryptocurrencies could get a lifting as lower rates reduce the cost of capital. Meanwhile, if the Fed pauses and decides on no-cuts, the uncertainty on interest rate trajectory could cause risk capital to fall.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme/
BFF)On Thursday, October 10th, The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2% on a seasonally adjusted basis, the same increase as in August and July. Over the last 12 months, the all-items index increased 2.4% before seasonal adjustment.
However, the headline CPI came in ahead of the 0.1% monthly gain and 2.3% year-over-year rate expected by analysts polled by Dow Jones. As a result, both the US equity markets and cryptocurrencies slipped on Thursday.
While the year-over-year headline CPI is the lowest since February 2021, digging into the category data reveals sticky inflation. Noticeable data includes:
• Food: +2.3% YoY. However, Eggs jumped 39.6%, while “nonconcentrated juices + soft drinks” category was up 15.3%.
• Motor vehicle insurance: +16.3% YoY
• Video discs + other media: +11.6% YoY
• Admission to sporting events: +10.3% YoY
• Health insurance: +7.5% YoY
High prices affect day-to-day life and contradict the notion of low inflation. The fact is that prices have gone up a lot in the past few years. Even though they rise more slowly now, the absolute price levels remain high. Examples from my personal experiences:
• The $9 price tag for 1-1/2 dozen eggs caused me to reduce purchase to 1-dozon for $5. I still remember the good old days of 99-cent per dozen large eggs.
• I watched a WNBC match featuring Indianapolis Fever and Catlin Clark in the summer. A seat close by the basketball court costs $200. Adding up hotel stay, fuel cost and a $50 T-shirt, this felt like a vacation budget.
• A recent doctor’s visit required copayment of $100. Six months ago, the same clinic charged $75. This is a 33.3% increase.
Event to Watch: The Next Fed Rate Decision
Retrospectively, it appears that the Federal Reserve acted a bit too aggressively with the supersized 50-bp rate cut in September. With the sticky inflation data, the Fed’s next move on November 7th is uncertain.
According to CME Group’s FedWatch Tool, as of October 11th, the futures market expects the Fed to cut 25 basis points at the next FOMC meeting, with an 88.4% probability. Gone are the odds of another supersized cut. Meanwhile, the probability of a no-cut increases to 11.6%.
cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
Driven by the lowered expectation on Fed rate cuts, on Thursday, the Dow Jones Industrial Average closed down 0.14% to 42,454, and the S&P 500 slipped 0.21% to settle at 5,780. Meanwhile, the Nasdaq composite shaved up 10 points (-0.05%) and closed at 18,282.
The cryptocurrency market has a more pronounced reaction. Bitcoin gave up the psychologically important 60K level, lost $1,442 (or -2.36%) and settled at $59,564. Meanwhile, ETHER gave up $57.2 (or -2.38%) and closed at $2,356.
However, market sentiments are still very bullish. By Friday, strong Q3 earnings reported by JPMorgan and Well Fargo helped push the stock market up again, with the S&P 500 breaking 5,800 and making its 45th all-time high in 2024.
In my opinion, Bitcoin futures would be a good instrument for event-driven trades on the Fed rate decisions, given its higher volatility.
Introducing Bitcoin Friday Futures
Bitcoin Friday futures (
BFF) are weekly, USD-settled contracts that offer a more precise way to gain bitcoin exposure and manage risk relating to such exposure. Each contract represents 1/50 of a bitcoin, ensuring capital efficiency and accessibility. The contract size of BFF is 1/5 of that of Micro Bitcoin Futures (MBC), which is 1/10 of a Bitcoin.These shorter-dated contracts expire and settle to the CME CF Bitcoin Reference Rate New York Variant (BRRNY) every Friday at 4:00 p.m. New York time and may track the spot price of bitcoin more closely.
Futures contracts traditionally expire on a monthly or quarterly basis, such as BTC and MBT, whereas BFF will settle weekly every Friday. Because of this shorter duration, BFF will have a shorter cost of carry resulting in a price that may more closely track bitcoin’s spot price.
Bitcoin futures price = bitcoin spot price + financing costs to carry the position to expiration
Two consecutive Fridays will be listed at any time. A new BFF contract will be listed every Thursday at 6:00 p.m. New York time such that market participants will be able to trade the nearest Friday plus the next two Fridays giving traders the choice to hold or not hold exposure over the weekend depending on their preference.
Trade Setup using BFF for the FOMC Event
The Federal Open Market Committee will release its next rate decision at 2:00 PM Eastern Time on Thursday, November 7th.
The BFF contract expiring Friday, November 8th will begin trading at 6:00 PM Eastern Time on Thursday, October 24th.
A trade could be set up on or after October 24th, and closed by November 7th or 8th, after the market reacts to the Fed decision and before contract expiration.
While the market overwhelmingly expects the Fed to cut 25 bps, new data could change the expectations dramatically in the next four weeks. The most important data points are:
• BLS Nonfarmed Payroll and Unemployment, November 1st
• US Presidential Election, November 5th
Separately, the next BLS CPI release will be on November 13th, after the BFF November 8th contract. We could use the BFF November 15th contract to trade on that event.
As an educational writeup, I do not offer a personal view on the future direction of BFF prices. With basic information provided here, traders could apply their own view to set up a trade on BFF.
Generally, if the Fed cuts rates in December, stocks and cryptocurrencies could get a lifting as lower rates reduce the cost of capital. Meanwhile, if the Fed pauses and decides on no-cuts, the uncertainty on interest rate trajectory could cause risk capital to fall.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme/
Jim W. Huang, CFA
jimwenhuang@gmail.com
jimwenhuang@gmail.com
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