Crypto exchanges are beginning to take on a new role: pricing traditional assets while Wall Street is closed.
The growing market for perpetual futures contracts linked to traditional financial instruments, including commodities such as gold and oil, which trade around the clock on cryptocurrency exchanges, is responsible.
Data from Binance Research suggests that these markets, which hit $31 billion in weekly trading volume on commodity volatility, are doing more than filling idle hours. Weekend price movements in gold-linked perps correctly predict the direction of Monday’s open in traditional futures about 89% of the time, Binance found. The correlation between the two sits close to 0.80, indicating a strong relationship.
The report finds a median “capture ratio” of 57%, meaning that more than half of the expected movement is already reflected in the crypto markets before traditional exchanges open.
The extreme volatility seen over the war in Iran serves as an example. As tensions rose over the weekend of February 28 to March 1, trading volume in those contracts rose to $8.1 billion, well above typical levels. Traders used the market to hedge 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’s data.
“While the extent of price discovery still has room for improvement, directional accuracy is already compelling,” the firm wrote. “Perpetual weekend price movements correctly predict the direction of Monday’s opening gap 89% of the time. For traders looking to position ahead of Monday’s open or manage weekend risk, this level of directional reliability makes TradFi-perps a valuable signal source.”
These products also offer other benefits by bringing financial instruments that would otherwise have forced crypto holders to step off the ramp to directly access their platforms.
Read more: Traders are the big winners as 24/7 stocks finally end after-hours price manipulation
