Simple Fair Value Calculation for Bitcoin Futures Contract Prices
This is a do it yourself calculator for seeing the fair value of a given bitcoin futures contract. See this post about futures prices and why they tend to be in premium to index/spot to get some background. The gist is that you can replicate the future value of a bitcoin by borrowing USD and investing in BTC. If you get an unsecured loan for US dollars which you then use to buy bitcoin and invest to earn a safe BTC return, this is identical to what the price of a bitcoin in US dollars would be in the future.
Under no-arbitrage principle in finance, the "fair" value of a futures contract should not deviate from the "Covered Interest Parity" which is based on the proportion of the borrowing rate of USD and lending rate of BTC.
In the form below, use the rates you can borrow dollars for and that you can lend BTC to earn interest for. If the price ends up being lower than what the market for futures is, there's an arbitrage opportunity to short futures contracts and replicate the long on future bitcoin using USD and BTC lending markets..
As a starting point, you can use for example Bitfinex swap rates for the United States Dollar (USD) and Bitcoin (BTC) rates, which can be found from the Futures Contract Spreads tool we have.
Finally, you need to choose how far out the maturity of the futures contract is. If you have a new quarterly contract, for example, then use days to maturity of 90. Weekly would be 7.
Remember: for the interest rate make sure you use the ANNUAL (APY) rate. The Days to Maturity field will adjust it appropriately to reflect the returns on a lower horizon.
Under no-arbitrage principle in finance, the "fair" value of a futures contract should not deviate from the "Covered Interest Parity" which is based on the proportion of the borrowing rate of USD and lending rate of BTC.
In the form below, use the rates you can borrow dollars for and that you can lend BTC to earn interest for. If the price ends up being lower than what the market for futures is, there's an arbitrage opportunity to short futures contracts and replicate the long on future bitcoin using USD and BTC lending markets..
As a starting point, you can use for example Bitfinex swap rates for the United States Dollar (USD) and Bitcoin (BTC) rates, which can be found from the Futures Contract Spreads tool we have.
Finally, you need to choose how far out the maturity of the futures contract is. If you have a new quarterly contract, for example, then use days to maturity of 90. Weekly would be 7.
Remember: for the interest rate make sure you use the ANNUAL (APY) rate. The Days to Maturity field will adjust it appropriately to reflect the returns on a lower horizon.
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