Summary

• Market showing signs of stability following FTX collapse with CME futures drawing premium over spot price.
• Institutional investors are cautious with CME futures term structure remaining inverted.
• Renewed interest in Bitcoin but uncertain if this will be sustained in the face of future market disruptions.

The market panic that ensued after the collapse of Sam Bankman Fried's FTX exchange in early November seems to be abating. The three-month bitcoin (BTC) futures listed on the Chicago Mercantile Exchange (CME), widely considered a proxy for institutional activity, are drawing a premium over the the cryptocurrency's going spot market price for the first time since FTX went bust.

This renewed premium indicates that institutional activity is no longer concentrated on the short side. The CME futures fell into a record discount in mid-November as sophisticated traders took bearish bets to hedge against a deeper FTX-induced slide in the leading cryptocurrency.

Bitcoin, however, has been more resilient than expected over the past two months, with the downside capped at around $16,000. This has led to renewed optimism in the market and a shift in focus from short positions to more bullish long-term outlooks.

It's worth noting that the CME futures are still trading at an annualized premium of 0.2%, while their Binance counterparts are drawing a premium of 2.4%. This disparity in premiums between the two exchanges suggests that institutional activity on the CME is less robust compared to that on Binance.

The CME futures term structure – the difference between futures of different maturities at a given time point – remains inverted or in backwardation, according to Arcane Research. In other words, farther-month contracts continue to trade at prices lower than near-month contracts, an anomalous condition, considering prices are generally higher at the long end of the curve. This phenomenon is typically associated with market uncertainty and a lack of confidence in the long-term outlook.

"While CME’s basis has recovered, the term structure remains in backwardation as institutional investors maintain a cautious view on bitcoin and less liquid further dated expiry dates," Arcane Research's Bendik Schei and Vetle Lunde wrote in a note to clients.

This is perhaps not surprising, given the volatility and uncertainty that has characterized the cryptocurrency market in recent years. However, the fact that the market has largely recovered from the FTX incident and that the CME futures are drawing a premium again is a positive sign and suggests that institutional investors are becoming more comfortable with the idea of investing in bitcoin. The real test will be whether this renewed interest can be sustained in the face of future market disruptions.