Huobi a Loser in China Crackdown, Bitcoin Futures Market Suggests

Call it the Huobi discount.

Bitcoin’s move to $50,000 has revived bullish sentiment, lifting futures premiums on most major cryptocurrency exchanges. These premiums represent the difference between the price of bitcoin futures contracts traded on a given exchange and the broader spot-market price – often seen as a gauge of speculative interest.

But on the Huobi exchange, historically skewed toward Chinese customers, the premium hasn’t budged. Analysts say the relatively low premium on Huobi might be the result of the exchange’s decision to suspend services to China-based clients.

While the annualized three-month futures premium or basis on Huobi has recently averaged around 5% on Huobi, the premium on Binance, OKEx, Deribit and other major exchanges has climbed to near 10%.

“Traders have been actively moving to other exchanges to trade perps and futures,” said Matthew Dibb, COO at Stack Funds. “Perps” refers to perpetual swaps, a type of derivative in cryptocurrency markets that serves as an alternative to typical futures contracts.

Huobi announced late last week that Oct. 29 will be the last day for derivative trading for users on the Chinese mainland. The exchange cited a “commitment to local compliance policies” and said it would “retire user accounts over the next few months.”

“Huobi’s trading volume amongst leveraged products has shown signs of weakening given the regulatory overhang from China,” Dibb said. “This is having a large impact on futures volume and basis.”

Patrick Heusser, head of trading at Crypto Finance AG, said that some traders on Huobi need to close their positions.

“This might be due to offboarding pressure by Huobi,” he said.

Arcane Research, a Norwegian cryptocurrency-analysis firm, wrote Tuesday in a weekly report that the Huobi futures contract had previously been one of the most important for bitcoin’s price discovery. “So these developments will present some interesting structural changes in the market onwards,” according to the report.

Huobi has lost significant market share to competitors Binance and OKEx since the start of the year. Huobi’s share of spot-market trading volumes has dropped to 16% from 24%, according to data from Kaiko.

The exchange’s phasing out of Chinese accounts over the coming months could impact its share of volume even more, Kaiko wrote in an Oct. 4 research newsletter.

Omkar Godbole contributed to this report.

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