Cryptocurrency exchanges are starting to take on a new role: pricing traditional assets while Wall Street is closed.
Responsible is the growing market for perpetual futures contracts linked to traditional financial instruments, including commodities such as gold and oil, which operate 24 hours a day on cryptocurrency exchanges.
Data from Binance Research suggests that these markets, which reached $31 billion in weekly trading volume due to commodity volatility, are doing more than filling hours of downtime. Binance found that weekend price movements in gold-linked offenders correctly predict the direction of Monday’s open in traditional futures about 89% of the time. The correlation between the two is close to 0.80, indicating a strong relationship.
The report finds a median “capture rate” of 57%, meaning that more than half of the expected movement is already reflected in crypto markets before traditional exchanges open.
The extreme volatility seen in the war in Iran serves as an example. As tensions rose over the weekend of February 28-March 1, trading volume in these contracts increased to $8.1 billion, well above typical levels. Traders used the market to protect themselves and react in real time while traditional venues were closed.
Weekend activity has grown steadily over the past month, as volumes now average around 38% of weekday levels, according to Binance data.
“While the magnitude of price discovery still has room for improvement, the directional accuracy is already compelling,” the company wrote. “Weekend perpetual price movements correctly predict the direction of Monday’s opening gap 89% of the time. For traders looking to position themselves ahead of Monday’s open or manage weekend risk, this level of directional reliability makes TradFi-perps a valuable source of signals.”
These products also offer other advantages by offering financial instruments that would otherwise have forced cryptocurrency holders to abandon direct access to their platforms.
Read more: Traders are the big winners as 24/7 stocks will finally put an end to after-hours price ‘manipulation’
