Ultimate Resource For Open Interest In Bitcoin Options And Futures And Institutional Demand
Open interest in bitcoin futures listed on the Chicago Mercantile Exchange (CME) has recovered significantly from the March lows, indicating a resurgence in institutions that want to buy the cryptocurrency. Open Interest In Bitcoin Options And Futures Rise As Institutions Return To Market
As of Wednesday, open interest, or the number of futures contracts outstanding, was $181 million, a 70 percent increase from $106 million recorded on March 22.
The number stood at $196 million nine days ago. That was the highest since March 7, according to data provided by the crypto derivatives research firm Skew.
“The growth in open interest from CME may indicate that entities from traditional finance are more open to add bitcoin exposure to their portfolios, whilst retail investors are seemingly more reluctant to indulge in the futures market,” cryptocurrency platform Luno noted in its latest weekly market report.
“An increase in open interest along with an increase in price is said to confirm an upward trend. Put simply, bitcoin’s recent rally has legs. “
Bitcoin futures listed on the CME are widely considered to be synonymous with the institutional activity and macro traders. The CME is the largest futures exchange in the world, providing institutions access to derivatives on equities, commodities, foreign exchange pairs and bonds, and was one of the first exchanges to launch bitcoin futures in December 2017.
Open interest had dropped sharply from $316 million to $107 million during the three weeks to March 12, as institutions treated bitcoin as a source of liquidity during the coronavirus-led “Black Thursday” crash in the global equity markets. Investors generally prefer to hold cash, mainly U.S. dollars, during a crisis situation.
The financial markets have stabilized somewhat over the last couple of weeks, mainly due to the unprecedented monetary and fiscal lifelines launched by the Federal Reserve and the U.S. government. The S&P 500 is currently reporting a rise of more than 25 percent from the multi-year low of 2,192 registered on March 24.
Rising Interest, Rising Price
Bitcoin has seen a solid price rally over the past four weeks. The cryptocurrency is trading near $7,050 at press time, representing an 82 percent increase on the low of $3,867 reached on March 12, according to CoinDesk’s Bitcoin Price Index.
The price rise is accompanied by an uptick in open interest in futures listed on the CME, as noted earlier. Total open interest on other major exchanges including Bakkt, Kraken, ByBit, Huobi, BitMEX, OKEx, Deribit, Binance, FTX and Bitfinex also increased, from $1.7 billion on March 13 to $2.3 billion on March 15.
An increase in open interest along with an increase in price is said to confirm an upward trend. Put simply, bitcoin’s recent rally has legs.
The rally is said to be driven by short covering, or bears taking profits, when the price increase is accompanied by a drop in open interest, and it is often short-lived.
Futures Trading Volume Drops
Some observers, especially chart analysts, look at the trading volumes to confirm price trends. Trading volume refers to the number of contracts traded during a given period of time.
A rise in volume along with a rise in price is said to validate the uptrend.
Total daily trading volume in futures listed across the globe topped out above $45 billion in mid-March and stood below $10 billion on Wednesday. Meanwhile, daily volume fell to a 4.5-month low of $83 million in CME’s futures, according to Skew data.
Hence, chart analysts may put a question mark on the sustainability of the recent price rally.
However, futures trading volume has dropped amid a rise in open interest. “It is often the result of investors holding on to their positions,” said Emmanuel Goh, CEO of Skew, in a Telegram chat in February, when the futures market was facing a similar situation.
In such cases, the market usually extends the preceding move, which is bullish in this case.
Bitcoin Eyes First 9-Week Bull Run As Options Open Interest Hits $1B
BTC/USD is just ten days from seeing 9 weeks of back-to-back green candles for the first time in its history as the battle for $10,000 continues.
Bitcoin (BTC) is just days from sealing the longest weekly bull run in its history, as markets continue to push for $10,000 support.
Data from Cointelegraph Markets, CoinMarketCap and TradingView confirmed that as of May 8, BTC/USD was on course for its eighth consecutive green candle on weekly timeframes.
This has only happened three times in Bitcoin’s history — if next week also closes higher, it will mark the first time ever that BTC/USD has closed nine green weekly candles.
The impressive price statistics capture the bullish trend which has characterized Bitcoin since it began recovering from its 60% crash in March.
Many figures have publicly stated their renewed faith in gains continuing this year, among them Mike Novogratz, who called Thursday’s reclaiming of $10,000 “exciting.”
“Exciting day for $btc,” he tweeted.
I want to point out that we aren’t even at the years highs. This rally is just starting. Don’t miss the bus.
Sentiment swiftly turns “greedy”
However, not all indicators point to bullish behavior marching on unchecked. As $10,000 reappeared, the famous Crypto Fear & Greed Index crossed over from its previous “neutral” setting to “greed.”
Just days ago, the Index showed “fear” as the prevailing market sentiment, with its abrupt U-turn possibly signaling that progress was occurring too quickly to be sustainable.
Other metrics also put in sudden highs, including Bitcoin options’ open interest, which hit $1 billion for the first time ever on Thursday.
As monitoring resource Skew noted, the composition of options is changing fast. On the day, the four largest increases in open interest on options contracts were puts: two on Deribit for $7,000 and $7,500, and two on CME at $12,500 and $10,500.
As Cointelegraph reported, a previous high in Bitcoin futures open interest this week — $399 million — produced mixed feelings among analysts.
Open Interest On CME Bitcoin Options Is Up 1000% So Far This Month
CME Bitcoin options open interest has soared to $142 million in the first half of May, marking an increase of over 10 times the value at the end of last month.
Open interest on Chicago Mercantile Exchange Bitcoin options has skyrocketed over the past few days, to hit $142 million as of May 15.
According to data from market analytics company, Skew, this represents a gain of over 1000% from just $12 million of open interest at the end of April.
Bitcoin Halving Sees Massive Interest In Options Trading
CME saw an initial spike in options volume on May 5 and May 6, with both days pushing towards $10 million. However this dropped off to a more usual $1 million on Friday May 8, the last trading day before the Bitcoin halving.
Options volume on the day of the halving, May 11, leapt back up to $17 million, and each of the three days since then has seen volume of between $30 million and $40 million.
This brought the open interest to $142 million at close of business yesterday, over 10 times the amount registered at the end of April.
Institutional Investment Is Still On The Rise
As Cointelegraph reported, institutional investment in Bitcoin (BTC) has continued to rise in the build up to and following Monday’s Bitcoin halving.
Notably, companies such as Grayscale and Fidelity Digital have reported increased interest, and hedge fund manager Paul Tudor Jones recently claimed that almost 2% of his equity is held in Bitcoin.
Open interest in CME’s Bitcoin futures also hit an all-time high last week.
Bitcoin Options: Deribit Exchange Sees Record Open Interest of $1B
Bitcoin’s option market continues to grow, signaling an increased influx of sophisticated traders and institutions into the crypto space.
Open interest (or open positions) in options listed on the Panama-based Deribit exchange jumped to a record high of $1 billion Tuesday, according to the data provided by the crypto derivatives research firm Skew. Each option contract on Deribit represents one bitcoin. On Tuesday, 101,000 options contracts were open on Deribit, the world’s largest exchange by options trading volume.
“The new record is driven by market sentiment, an increased number of diverse global participants on Deribit and the efforts made by our various partners and us to provide a premier quality market at all times with the highest capital efficiency, integrity and connectivity and trading solution,” said Luuk Strijers, Deribit’s chief compliance officer.
Options trading activity on the exchange has surged this year, as evidenced by a year-to-date gain of 270% in open interest. Daily trading volume hit two-month highs above $100 million last week and has increased by 170% this year.
Options are derivative contracts that give the purchaser the right, but not the obligation, to buy or sell the underlying asset at a predetermined price on or before a specified date. A call option gives the holder the right to buy, while the put option gives the holder the right to sell.
“Options are one product that attract sophisticated traders,” Skew’s CEO Emmanuel Goh said at Consensus: Distributed on May 14. Big traders and institutions often use options to hedge long/short positions in the spot and futures markets.
The growth in open interest is primarily being driven by options expiring next month. As of Wednesday, more than 40,000 contracts expiring on June 26, 2020, are open.
Open interest is relatively low for options expiring in September and December. That’s because longer-duration options are more expensive. “Over time you will see a pickup in September or December,” said Strijers.
Options are more complicated than futures contracts because their price depends on a variety of factors like volatility, time to expiration, a risk-free interest rate and so on. Further, options tend to lose value as expiry nears.
The pricing of futures contracts is relatively easier to understand. As a result, futures are more popular and usually see higher open interest than options. However, in Deribit’s case, options activity is much higher.
Currently, there are $1.36 billion worth of open positions in bitcoin and ether derivative contracts (futures and options) listed on Deribit, of which nearly 74% is being derived from bitcoin options.
Open positions in options listed on the Chicago Mercantile Exchange (CME), widely considered to be synonymous with institutional demand, rose to a new lifetime high of $174 million on Tuesday.
Investor interest began rising ahead of bitcoin’s mining reward halving on May 11 and has continued to surge ever since. Notably, the metric hit record highs for three consecutive days after the event.
While activity in options continues to rise, it’s difficult to gauge whether investors are selling or buying calls/puts. “Those are two possibilities, although we cannot know for sure. However, implied volatility is relatively stable in the last few days suggesting the flows might be balanced,” said Skew’s Goh.
Bitcoin is currently trading near $9,700. The cryptocurrency has been largely restricted to the trading range of $8,100–$10,000 since the halving.
Bakkt Physical Bitcoin Futures Beat Cash Ahead of Major CME Expiry
Volumes for Bakkt’s futures delivered in BTC are trumping fiat settlements as markets rise to fill a days-old CME gap.
Bitcoin (BTC) futures platform Bakkt now sees most of its contracts settled in BTC, not cash, the latest data reveals.
According to analytics resource Skew, the latest date for which data is available in May produced $34 million for Bakkt’s physically-settled Bitcoin futures.
Tide Turns Against Cash Settlement
Cash-settled Bitcoin futures recorded $9.3 million in volume, while total open interest was $7.6 million.
The trend reverses the previous status quo, under which futures settled in fiat saw larger volumes. This was the case throughout March and April, as volatility underscored investors’ desire for cash.
May meanwhile also saw a daily record for physically-settled futures at Bakkt at $43 million.
This Friday will further see 50% of open interest expire at fellow non-exchange futures provider CME Group. As Cointelegraph reported, such settlement dates tend to compound downward price pressure on Bitcoin in the short term.
CME’s open interest hit its own all-time high in the first week of the month.
CME Gap Filled Days After Opening
Nonetheless, a “gap” which opened up in the CME order book over the weekend was conspicuously “filled” on Wednesday, in line with another regular trend seen since 2017 when Bitcoin futures began trading.
BTC/USD suddenly rose from $8,900 to $9,200 on the day, sealing the gap, which lay between $9,065 and $9,180.
Institutional Bitcoin investment has returned to the spotlight in recent weeks. A major event for commentators was an admission by billionaire hedge fund player Paul Tudor Jones that he now kept up to 2% of his net assets in BTC.
Thereafter, RT host Max Keiser among others claimed that sooner or later, others would have no choice but to follow his conspicuous endorsement of the cryptocurrency.
Open Interest In Ether Options Hits Record High On Deribit
Derivative contracts on ether are more popular than ever, as evidenced by record open positions in options listed on the Panama-based derivatives exchange Deribit.
Open interest, or the number of contracts outstanding and not yet liquidated by an offsetting trade, rose to a record high of $136 million on Monday, marking a 460% increase from $24 million seen on March 24, according to data provided by crypto derivatives research firm Skew.
In ether (ETH) terms, there were 547,000 option contracts open on Monday, a record high. Meanwhile. daily trading volume rose to a new lifetime high of $24 million on Monday, surpassing the previous record of $20 million reached two days before.
“We see increased interest in ETH options due to price performance since mid-March, [with] new firms entering the options space,” said Luuk Strijers, COO at Deribit.
Ether’s price rose by 55% and 12% in April and May, respectively, and was trading near $240 on Monday, representing a solid 166% gain from its March low of $90, according to CoinDesk’s data. The sharp rally looks to have revived institutional interest in ether’s options, which evaporated during March’s price crash.
Apart from the price rise, observers credit the upcoming transition from Ethereum’s proof-of-stake mechanism to proof-of-work mechanism, dubbed Ethereum 2.0, for boosting activity in options.
“We also see an increase in over-the-counter (OTC) interest, resulting in dealers hedging on Deribit, possibly related to a shift in investor interest into ETH post-[Bitcoin] halving and with the upcoming ETH 2.0 launch,” said Strijers.
When an investor buys structured products over the counter, the dealer often hedges the exposure, at least partially, by buying or selling call or put options on exchanges. As a result, exchanges often register an increase in activity with the uptick in demand for OTC products. A call option gives the holder the right but not the obligation to buy the underlying asset at a predetermined price on or before a specific date. Meanwhile, a put option represents a right to sell.
Where The Yields Are
Ethereum’s switch to a staking model would allow ETH investors to earn a yield on their holdings. The prospect of earning extra ethers in return for holding existing coins in wallets to support the operations on a blockchain is already drawing investors to the second-largest cryptocurrency by market value.
Ether’s price has gained a lead over bitcoin in the past few days. While bitcoin rallied by 8% last week, ether was up by over 15%, according to CoinDesk data.
The search for yield is also one of the main reasons for the growth in the crypto options market, according to Darius Sit, managing partner at Singapore-based QCP Capital. “More people are starting to realise the unique opportunity in crypto options for outsized returns and high yields with relatively low risk (if properly managed),” said Sit.
Crypto investors often lend their holdings to centralized exchanges and lending platforms for a fixed return. However, doing so takes up a significant amount of credit risk from their loans being hypothecated – a practice whereby banks and brokers use, for their own purposes, assets that have been posted as collateral by their clients.
“Capital is now beginning to shift away from lending and into options,” said Sit while adding that “this pattern would continue, especially with the negative interest rate environment across the globe.”
Investors Selling Puts?
Key option market metrics suggest investors are bullish on ether.
The put-call open interest ratio, which measures the number of put options open relative to calls, rose to a nine-month high of 0.93 on May 28, after having bottomed out at 0.40 in mid-March.
The uptick does not necessarily represent a build up of long put positions. In fact, the one-month put-call, which measures the price of puts relative to that of calls for options expiring in one month, is currently at -5.8%. The three-month and six-month gauges are also printing negative values.
The negative numbers indicate that put options are cheaper than calls. To put it another way, investors are looking to sell, or “write” puts, which is usually done when the market is expected to rise or trade in a sideways manner.
Futures Register Growth
Increased interest in ether derivatives aren’t limited to options on Deribit. Ether futures listed on major exchanges – BitMEX, FTX, Deribit, Kraken, OKEx, Bitfinex, Huobi, Bybit, Binance – have witnessed solid growth over the past two months alongside an uptick in prices and growth in the options market.
The aggregate daily open interest rose to $753 million on May 30 to hit the highest level since early March. As of Sunday, open interest was $740 million, up more than 100% from March lows.
Bitcoin Options See ‘Fast’ Q2 Growth As CME Open Interest Tops $259M
CME is gaining presence in Bitcoin options in a market still dominated by Deribit and exchanges, new data reveals.
Bitcoin (BTC) derivatives interest is putting in “fast” growth this quarter — and CME Group is leading the way for options, new data shows.
According to monitoring resource Skew, the past weeks have seen CME dramatically increase its share of open interest for Bitcoin options.
CME Market Dominance On The Up
Open interest refers to the total derivative contract volume, which has not yet been settled. CME had already set all-time highs in early May but has since increased its presence dramatically.
As of June 4, open interest stood at $256 million, just $3 million short of all-time highs. By contrast, at the start of 2019, CME recorded a minimum of $2 million in open interest.
“Bitcoin options open interest growing fast this quarter,” Skew summarized about the broader open interest trend.
Zooming out, the market remains dominated by exchange-based futures operators. The lion’s share of open interest belongs to Deribit, with OKEx and LedgerX also major players.
Bakkt, the other well-known non-exchange futures platform, has negligible figures by comparison to CME, with open interest most recently hitting $69,000.
Focus On The Allure Of BTC Derivatives
As Cointelegraph reported, expectations are high that derivatives trading will propel Bitcoin further into the public spotlight in the near future.
A report from Coin Metrics this week highlighted the ecosystem as the main contributor to overall Bitcoin trading volume.
“Similar to other asset classes, derivatives markets in Bitcoin are several times larger compared to spot markets,” it stated.
“If reported volumes are to be believed, gaining exposure through derivatives markets may be the most efficient path.”
Bullishness Building In Bitcoin Options Market, Data Suggests
Option market traders look to be placing bets for a continued upward move in bitcoin, according to a key metric.
The put-call open interest ratio, which measures the number of put options open relative to call options, fell to 0.43 on Thursday – the lowest since March 24, according to crypto derivatives research firm Skew. The data takes into account open interest at leading derivatives exchanges Deribit, OKEx, CME, LedgerX and Bakkt.
Notably, the ratio has declined sharply from 0.81 to 0.43 over the last four weeks.
“The put-call ratio can gauge the overall sentiment of traders and the lower ratio dictates that more traders are buying calls (bullish bets) than puts (bearish bets),” according to Lennard Neo, head of research at Stack, a provider of cryptocurrency trackers and index funds. “The decline toward 0.4 indicates that some form of bullishness is building,” he said.
However, it is possible to argue that increased selling of calls is causing a drop in the put-call ratio. After all, open interest refers to the number of calls and put contracts that are active, or open, at a given point in time and does not reveal whether investors are buying call/put options or selling (known as “writing” in options markets).
Traders usually buy calls when the market is expected to rise and buy puts when prices are likely to fall. That said, experienced traders often sell calls when the market is expected to remain range-bound and not rise beyond a certain level. Selling a call or put can be equated to selling a lottery ticket, where the maximum profit for the seller is the ticket price. The loss is huge if the buyer wins the lottery.
However, in this instance, the decline in the ratio does look to have been fueled by increased call buying, a sign of bullish sentiment, as calls are commanding higher prices than puts.
The one-month put-call skew, which measures the price of puts relative to that of calls, is currently at -1.9%. Three-month and six-month skews are also reporting negative values.
“The move lower in the put-call ratio likely reflects the sharp increase in call buying on the Chicago Mercantile Exchange (CME)”, said Shaun Phoon, senior trader at Singapore-based QCP Capital.
Data from CME, which is considered synonymous with institutional and macro trading, does show that the market is currently being driven almost entirely by the activity in calls.
“As of June 4, about 25,000 bitcoin worth of call contracts were open in total and most of those are between the $10,000 to $15,000 strikes,” Ecoinometrics, a bitcoin analysis company, noted in its daily newsletter.
Currently, there are 51 calls open against one put option. Clearly, the CME options market is heavily skewed to the bullish side.
A Reliable Indicator
“The put-call open interest ratio has proven its fortitude and has dictated the right direction over the past few major moves such as the Fed decline, and post-crash rally,” said Stack’s Neo.
The previous two instances of sub-0.5 readings on the ratio observed in early January and in the second half of March coincided with the beginning of major upswings in prices.
The ratio bottomed out at 0.42 on March 24, after the cryptocurrency had dropped close to $6,500. In the following six weeks, prices rose back to highs above $10,000.
The likely scenario is that the options market is anticipating another move above $10,000.
Bitcoin, however, needs to build a strong base above that level, as that would likely draw stronger chart-driven buying. Over the last 12 months, bitcoin has failed multiple times to keep gains above $10,000.
Number of Institutions Buying Crypto Futures Doubled In 2020: Fidelity Report
Fidelity’s digital asset subsidiary found the number of U.S. institutional investors buying crypto derivative products jumped significantly in 2020.
Fidelity Digital Assets said institutional sentiment was improving in relation to cryptocurrencies. “[A]lmost 80% of investors surveyed finding something appealing about the asset class,” it said.
But what’s far more interesting is right down in the guts of the survey. Talking about how institutional investors are increasing their portfolio allocation to cryptocurrencies – the top one, unsurprisingly, being bitcoin – it goes on to say, “22% of U.S. respondents invested in digital assets have exposure via futures, which is a substantial increase relative to 9% of U.S. investors surveyed in 2019.”
The survey, which took place between November and March, spoke to 774 institutions in the U.S. and in Europe, with 393 coming from the U.S. That means around 86 U.S. institutions traded crypto futures this year, compared to just 40 in the 2019 survey.
Fidelity’s report ventures that the “recent market growth in the number of crypto native and incumbent service providers offering cash and physically settled futures contracts” may help explain this large increase in crypto futures exposure among institutions.
Boston-based Fidelity Investments is one of the largest asset managers in the world. In a press release, it claims to have more than $7.9 trillion worth of client assets under administration. In 2018, it unveiled its digital assets wing to provide custody and trade execution services for U.S.-based institutional investors. In December last year, it set up a new entity to service institutions in Europe.
The survey, which was released Tuesday, also found 36% of respondents – 279 institutions in the U.S. and Europe – were currently already invested in digital assets. Hedge funds and venture funds were the two buckets with the greatest exposure, although Fidelity also found a strong showing among family offices and high-net-worth individuals (HNWIs).
“These results confirm a trend we are seeing in the market towards greater interest in and acceptance of digital assets as a new investable asset class,” commented Tom Jessop, president of Fidelity Digital Assets.
Interestingly, it appears European institutions (45%) were much more likely to hold crypto compared to their American counterparts (27%). This trend also played out in sentiment, where 82% of European institutional investors found something appealing about digital assets, as opposed to 74% in the U.S.
Still, the survey did not specify what led U.S. institutional investors to up their exposure to crypto futures. CoinDesk reported on a CryptoCompare report last week that found crypto derivatives trading volumes soared to $602 billion in May, a new all-time high. Options contracts, in particular, appeared to show the biggest increase, compared to the month before.
At the time, CryptoCompare CEO Charles Hayter said the increase may indicate a “more sophisticated, diverse class of investor” coming to the market.
CoinDesk reached out to Fidelity for more information such as whether the products were solely bitcoin-based futures and which platforms, like BitMEX or CME, institutions were using to buy crypto futures.
In an email, a spokesperson said: “We did not get into specifics on platforms in the survey so I don’t have any additional info to provide on this point.”
Bitcoin Options Growth Outpaces Futures, Swaps
Bitcoin options trading is growing faster than the futures and swaps market, according to data from Skew.
Measured by the ratio of aggregate open interest in the bitcoin options market to open interest for bitcoin futures and swaps, a clear upward trend is observable from January 2020 to date.
A historical trend of a higher ratio signals a rate of growth in options open interest that exceeds growth in that of bitcoin futures and swaps. Open interest is defined as the outstanding contracts, measured here in dollars.
Although the open interest in bitcoin options is growing and is now roughly 35% that of futures and swaps, it still has a long way to go compared to traditional financial markets where options open interest and trading volumes are “generally a multiple of futures,” said Su Zhu, co-founder of cryptocurrency hedge fund Three Arrows Capital.
“It makes sense for bitcoin to go a similar route as liquidity improves and institutional players come in,” he added.
Likewise, the dollar value of options trading volume is a tiny fraction of futures even as March saw volumes for bitcoin options and futures hit yearly highs, according to Skew. Aggregate options volume reached $294 million, while futures volume passed $45.5 billion. Options volume was about $220 million in May.
Growth in options trading has been helped by OKEx and CME Group launching bitcoin options in December 2019 and January 2020, respectively. Still, Panama-based exchange Deribit still supports roughly 85% of daily volume, according to Skew.
A healthy market for options and other products designed for volatility-based trading adds “a lot of things that you just fundamentally can’t get without nonlinear derivatives,” said Sam Bankman-Fried, CEO at cryptocurrency derivatives exchange FTX.
For example, some of the new, exotic volatility trading products launched by FTX will likely benefit from options market growth as more traders contribute to volatility-based price discovery. In short, growth in options trading “adds a lot to the space,” Bankman-Fried said.
Bitcoin Options Open Interest Rises 50% In A Month To Hit $1.5 Billion
Just over a month since open interest in Bitcoin options hit a record high of $1 billion, the latest figures show that it has increased 50% to break $1.5 billion.
According to the latest data from market analysis company Skew, total open interest in Bitcoin (BTC) options passed $1.5 billion on June 9. This comes barely a month after open interest crossed $1 billion for the first time, marking a 50% increase in just 33 days.
50% Rise In A Month Led By Two Players
Total Bitcoin options open interest hit $1 billion for the first time ever on May 7. Just over a month later, Deribit alone has open interest of $1.1 billion, and the total open interest has broken through $1.5 billion.
Deribit’s 20% increase from $903 million over the course of the month has not been the biggest story though.
Chicago Mercantile Exchange (CME) has increased its Bitcoin options open interest by over 850% in this time. On May 7 this stood at $38 million, but by June 9 CME recorded $368 million of open interest.
CME Aiming For The Options Crown?
As Cointelegraph reported, in the first half of May alone, open interest on CME Bitcoin options soared a massive 1,000% from $12 million to $142 million.
While unable to sustain quite that level of growth, the latest figures show that CME’s options momentum is far from running out of steam.
Of the other major players in the BTC options market, LedgerX open interest remained roughly the same since May 7 at $52 million while OKEx saw a 15% fall to $65 million.
An outlier in the field, Bakkt also saw a fall in open interest, from $80,000 to $68,000.
Despite this, the performance of both Deribit and CME shows that Bitcoin options is a rapidly growing market sector.
CME Bitcoin Options Market Grew 10x In The Past Month
Over a recent 30-day period, the total open interest for CME bitcoin options increased more than tenfold, from $35 million on May 11 to $373 million on June 10. Moreover, open interest made a new all-time high on six consecutive days from June 5-10.
Significant growth in CME futures points to rapidly growing interest by institutional investors in trading regulated bitcoin derivatives products. Despite this growth, however, CME Group “has no plans to introduce additional cryptocurrency products,” a spokesperson told CoinDesk. Thus for now, CME Group’s cryptocurrency products will only involve bitcoin.
CME, which launched its bitcoin options product only at the beginning of 2020, now represents over 20% of the global bitcoin options market measured by open interest, or the total number of outstanding derivative contracts. It’s now the second-largest bitcoin options market in the world behind Panama-based Deribit, according to Skew.
Growth in CME’s bitcoin options market is “a strong signal that regulated institutions are exposing their books to bitcoin,” said Matt Kaye, managing partner at Los Angeles-based Blockhead Capital. “CME has a higher cost of capital and is closed on weekends, so anyone trading there is likely making those sacrifices because they have to.”
Much of CME’s growth appears to have come at the expense of Deribit. Market shares claimed by competing bitcoin derivatives markets LedgerX, Bakkt and OKEx have remained largely unchanged since January.
Options aren’t the only bitcoin derivatives market where CME is seeing gains. In May, CME’s bitcoin futures demonstrated similarly remarkable growth, outpacing nearly every other bitcoin derivatives platform on a real and percentage growth basis. CME bitcoin futures open interest grew 29% over the last 30 days as institutional investors continue to enter the bitcoin derivatives market.
‘Looks Bad’ — Bitcoin Futures Echo Days Before March Crash, Says Trader
Analysis of futures behavior is strongly reminiscent of the days before BTC fell to $3,600, Cointelegraph Markets’ filbfilb warns.
Bitcoin (BTC) futures were worrying analysts on July 10 as volume data suggested serious weakness and the potential for a major pullback.
Uploading a weekly chart of CME Group’s Bitcoin futures to Twitter, Cointelegraph Markets analyst filbfilb did not mince his words describing the current climate.
Filbfilb: BTC Futures “Almost Identical” To March
“Looks bad,” he summarized, noting that a volume indicator had returned to an identical setup as the week before Bitcoin crashed to $3,600 in March.
“Almost identical positioning as the big drop last time and a clear descending triangle full of wicks at resistance, trading below (point of control).”
Specifically, commitments of traders (COT) — both retail and institutional — had maneuvered to exactly the same place that it was in just days prior to the crash. COT is updated on Fridays using data from the previous Tuesday; as such, the metric gives a snapshot of the status quo several days previously.
“I doubt it has changed much,” filbfilb told Cointelegraph in private comments.
COVID-19 Dump To Be Avoided
Bitcoin has seen mixed price action this week as moves towards $9,500 were dictated by stock markets. A drop late Thursday took BTC/USD back to $9,000 support.
Asked whether traders should expect an exact rerun of March, however, filbfilb remained more optimistic.
“I don’t think there will be a dump anything like last time,” he wrote.
“However; the positioning of the big players began 8.5-10.5k last time & that was before the climate took a nose bleed- these guys are short here on technicals rather than the external risk (in my opinion).”
Bitcoin derivatives have sparked differing narratives in recent weeks. In late June, a $1 billion open interest expiry event initially fuelled speculation of a price drop, but ultimately had no discernable impact on the market.
Other Bitcoin network fundamentals remain strong, with hash rate reaching all-time average highs this week and difficulty set for a 9% upward adjustment in two days’ time.
Bitcoin Futures Trading Volume Slips To 3-Month Low On CME
Trading activity in bitcoin futures listed on the Chicago Mercantile Exchange (CME) has cooled notably as the leading cryptocurrency languishes in the price doldrums.
Daily trading volume fell to $87 million (via 1,895 contracts) on Friday to hit the lowest level since April 17, when the exchange-traded contracts were worth $77 million, according to data from crypto derivatives research firm Skew.
Volume topped out at $914 million on May 11 – the day bitcoin underwent its third miner reward halving – and has been on a declining trend ever since.
The halving was widely expected to put a strong bid under the cryptocurrency. Instead, bitcoin’s uptrend from March lows below $4,000 stalled following the halving, and the cryptocurrency has remained largely locked in the range of $9,000 to $10,000 ever since.
The unusually quiet period for bitcoin trading seems to be the primary reason behind the steady decline in CME’s futures volume.
Global daily volume, as calculated by adding numbers from BitMEX, Deribit, Kraken, OKEx, bitFlyer, CoinFlex, CME. Huobi, FTX, Bitfinex, Binance, Bybit, and Bakkt, has also tanked over the past two months.
As of Sunday, aggregate daily volume was just $4.65 billion – down 87% from the $36 billion observed on May 11.
“Continued range-trading and an inability to confidently break above $10,000 has led investors to allocate capital into other segments of the crypto market,” said Matthew Dibb, co-founder of Stack, a provider of cryptocurrency trackers and index funds.
Indeed, alternative cryptocurrencies like the oracle network Chainlink’s LINK token, Stellar’s XLM and tokens associated with the decentralized finance (DeFi) space like Compound’s LEND have received greater attention from the investor community over the past week or two.
Tokens like LINK and XLM have witnessed a surge in trading volumes in the spot market this month, while bitcoin’s volume in both the spot market and futures market has declined.
LINK’s trading volume on Coinbase, the largest U.S. exchange, has increased by 67%, while XLM’s volume has jumped by nearly 40% to new record highs. Meanwhile, bitcoin trading has diminished for the third straight month.
“With the hype around the DeFi, this trend may continue for the short-term,” Dibb said in a direct chat with CoinDesk.
CME Open Interest Down Too
Open interest, or open positions in futures, listed on the CME (which is considered synonymous with institutional participation) has also declined along with the daily trading volume. As of Friday, $364 million worth of positions were open on the CME – down 31% from the high of $532 million observed on May 19.
However, aggregate or global open interest remains elevated near $4 billion, the highest level since early March.
Derivative analysts consider the combination of declining trading volume and elevated open interest as a sign of investors holding on to their positions. In such cases, markets usually extend the preceding move, meaning bitcoin could break above $10,000 in the near-term, marking a continuation of the uptrend from the March low of $3,867.
Bitcoin Futures Pass $1B In Open Interest On Bitmex For First Time Since March Crash
Open interest for bitcoin futures on BitMEX – the largest derivatives exchange by open interest – passed $1 billion Tuesday morning for the first time since the cryptocurrency market crash in March, a sign of life in a very quiet market.
* Open interest for bitcoin futures across all cryptocurrency exchanges broke above $4 billion for the first time since March, according to data from Skew.
* Before the March crash, open interest for bitcoin futures on BitMEX was about $1.2 billion.
* As open interest grew Tuesday morning, bitcoin gained more than 2%, breaking above $9,400, according to Bitstamp.
* “Open Interest on BitMEX has been climbing steadily, and we’re encouraged to see it surpass the symbolic $1 billion mark again,” said Greg Dwyer, head of business development at BitMEX.
* Bitcoin volatility and trading volumes remain low, however, as traders wait for decisive price movement in either direction.
* “During this current stretch of relatively low volatility, we’re seeing traders accumulate positions on our platform in readiness for what we believe is likely to be a significant uptick in volatility later in the year,” Dwyer told CoinDesk.
Bitcoin Futures Open Interest Targets Record As BTC Price Nears $10K
A week of solid gains for investors is sparking changes at CME, data shows as $9,500 continues to hold.
Bitcoin (BTC) derivatives have returned to the spotlight this week as price moves appear to spark a surge in open interest.
Data from on-chain analytics resource Skew showed open interest for CME Group’s Bitcoin futures nearing record highs in U.S. dollar terms this week.
Bitcoin Futures Open Interest Passes $450M
After falling following Bitcoin’s block subsidy halving in May, the downtrend continued through last month before rebounding over the past seven days.
Daily volume easily topped $300 million during the week, while open interest passed $450 million and was on course to top its all-time high of $532 million at press time.
Open interest refers to the total value of derivatives contracts that have yet to be settled. High open interest coupled with low volume tends to suggest a speculative setup among investors, and the rebound in volume provides a reassuring sign that a sell-off may be averted.
This week alone, however, open interest has soared by more than 30% as BTC/USD reclaims support levels at around $9,500.
Big Money Is Already In Bitcoin
As Cointelegraph reported, institutional investor activity has once again become a topic of interest for analysts. This week, U.S. regulators formally allowed chartered banks to offer crypto custody, leading to projections of intense price growth should banks get serious about Bitcoin investment.
According to asset manager Capriole’s Charles Edwards, a mere 1% asset allocation to BTC would spark a price surge that would eclipse 2017’s peak of $20,000.
“It’s not hard to see where this is going,” he added.
Grayscale, the investment giant that now owns more than 2% of the Bitcoin supply, recorded institutional inflows of $1.4 billion for the first half of the year.
CME Rises In Bitcoin Futures Rankings As Institutional Interest Grows
* The Chicago Mercantile Exchange (CME) has leapt up the listings to become the third-largest bitcoin futures exchange by number of open contracts.
* As of Thursday, open interest (or open positions) on the CME stood at $800 million – up nearly 120% from the July low of $365 million.
* CME’s 15% contribution to the total global open interest of $5.22 billion on Thursday was the third-highest among the major derivatives exchanges.
* In first and second positions, respectively, OKEx accounted for 23% of the total open interest on Thursday, while BitMEX contributed 18.6%.
* Open interest on the CME had hit a record high of $841 million on Monday.
* Increased activity on the CME shows institutional interest in the cryptocurrency is rising, according to industry experts.
* A month ago, open positions on the CME were 12% of the aggregate global total.
* Back then, CME was the fifth-largest exchange by open interest and BitMEX was the industry leader.
* CME’s climb is “an indication of increased institutional demand for bitcoin,” said Vishal Shah, an options trader and founder of derivative exchange Alpha5.
* Chris Thomas, head of digital assets at Swissquote Bank, told CoinDesk that institutions prefer to trade futures of any product via an established and regulated exchange like the CME.
* “It’s a norm – institutions understand each part of the trade cycle when trading on the CME and don’t have to set up new processes to manage risks that they would have to while buying physical bitcoins,” Thomas said.
* While open interest on the CME has increased to record highs, daily trading volumes have recently cooled.
* The exchange traded futures contracts worth $347 million on Thursday, down 73% from the high of $1.3 billion registered on July 27.
* “It means there is less price sensitivity for trades on the CME and implies less risk for extremely high bouts of volatility,” Shah told CoinDesk in a Telegram chat.
* Bitcoin is trapped in an ascending channel, as seen on the daily chart.
* A UTC close above $12,000 would confirm a breakout and imply a continuation of the rally from July lows near $9,000.
* A move below the lower edge of the channel may invite stronger selling pressure.
Collapsing Bitcoin Futures Premium Offers Glimpse of New Digital Money Market
Bitcoin traded slightly higher early Thursday at $11,772 after falling for two straight days.
The largest cryptocurrency by market capitalization has declined 1.3% this week as the U.S. dollar strengthened in foreign exchange markets. The greenback gained support Wednesday as the Federal Reserve said it wasn’t immediately planning to implement a “yield curve control” program that probably would have brought an accelerated pace of money printing.
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“The corrective moves we witnessed are necessary for the market to cool down and catch a breath,” Joe DiPasquale, CEO of the cryptocurrency investment firm BitBull Capital, told CoinDesk in an email. “Moving forward, we can expect the market to lean on the support zone between $11,000 and $11,500 to consolidate and try another push above $12,000.”
Bitcoin’s mini sell-off this week has revealed a key feature of fast-evolving cryptocurrency markets: How dollar-linked “stablecoins” are being used to fund exotic futures trades, similar to the way money markets serve as a vital lifeblood on Wall Street.
As flagged earlier this week by the Norwegian cryptocurrency-analysis firm Arcane Research, prices for bitcoin futures contracts on the Chicago-based CME exchange have been trading well above “spot” prices for the underlying security. That premium rose last week to 20%, the highest in five months, seen as a sign of just how bullish big investors have become on bitcoin.
This week’s retreat in prices below $12,000 has led to a squeeze for traders who were attempting a “cash and carry arbitrage,” as reported Wednesday by CoinDesk’s Omkar Godbole. It’s a strategy in which traders buy bitcoin and then short futures contracts on the cryptocurrency, betting the prices will eventually converge and the premium will be pocketed as a profit.
The annualized premium dropped to 14% in under 48 hours as prices slid, and some traders rushed to unwind their arbitrage trades.
One lesson from the episode is that traders were apparently using stablecoins such as tether (USDT) to fund the trade, according to Godbole.
“Stablecoins are widely used as funding currencies, and there has been a high demand for these dollar-backed cryptocurrencies from institutions,” Skew CEO Emmanuel Goh told Godbole in a Telegram chat.
Bitcoin’s recent price pullback may worsen as the U.S. dollar shows signs of life on the back of minutes released Wednesday from the Federal Reserve’s meeting in July.
* The U.S. Dollar Index, which tracks the greenback’s value against that of other reserve currencies, has jumped 1% to 93 in the past 24 hours, the biggest single-day rise in two months.
* USD has picked up on the news the Fed is not planning on implementing controversial yield curve controls on bonds – something markets had been anticipating.
* The correlation between bitcoin and the dollar is historically weak. But in the past month there has been a growing inverse relationship between the two as more investors look for alternatives to the U.S. currency. Analysts with Goldman Sachs and some investors have warned the greenback’s reserve-currency status might be at risk.
* CoinDesk pricing data shows bitcoin rising from $9,000 to $12,400 in the four weeks through Aug. 17, just as the dollar index declined to 92 from 97.
* But in the face of a strengthening dollar, bitcoin has fallen to around $11,780, down 5% from a 2020 high reached earlier this week.
* Continued recovery in the dollar could yield further losses for bitcoin, but a sustained rebound in the U.S. currency still looks unlikely. Interest rates likely to remain close to zero to stimulate the economy, and inflation-adjusted yields are trading at negative levels; analysts at Deutsche Bank and elsewhere say the Fed might be forced to undertake more radical monetary measures.
Leveraged Funds Take Record Bearish Positions In Bitcoin Futures
Bearish bets in bitcoin futures from leveraged funds recently rose to record highs on the Chicago Mercantile Exchange (CME) – though that doesn’t necessarily imply a fresh sell-off is coming.
* In the week ended Aug. 18, leveraged funds – hedge funds and various types of money managers that, in effect, borrow money to trade – increased their short positions by 110% to a record high of 14,100 contracts.
* The data comes from a Commitment of Traders (COT) report published by the U.S. Commodity Futures Trading Commission (CFTC) on Friday.
* Institutional investors held 1,400 short contracts last week too, per the COT; a number that has also more than doubled
* “Record shorts [by leveraged funds] were mostly likely a function of attractive cash and carry levels,” according to Skew, a crypto derivatives research firm.
* “Cash and carry” is an arbitrage strategy that seeks to profit from mismatches in pricing between a derivative product and its underlying asset.
* The method involves buying the asset on the spot market and taking a sell position in the futures market when the latter is trading at a significant premium to the spot price.
* Futures prices converge with spot prices on the day of the expiry, giving a risk-free return to a carry trader.
* Bitcoin futures, due to expire on Aug. 28, were trading at a premium of $400 earlier this month, as per TradingView data.
* As the highest premium since April, that may have prompted leveraged funds to make carry trades. Other exchanges like OKEx also witnessed a surge in the futures premium, as discussed last week.
* The premium has declined to sub-$100 levels in the past three trading days (CME futures are closed on Saturday and Sunday), making carry trades relatively unattractive right now.
* Skew, therefore, expects the next CFTC report for the week ended Aug. 25 to show a decline in short positions.
* Having put in lows below $11,400 over the weekend, bitcoin has rebounded to over $11,790 at press time, according to CoinDesk’s Bitcoin Price Index.
* A series of higher lows (marked with arrows) seen on the daily chart suggest the path of least resistance is to the higher side.
* The low of $11,367 registered on Saturday is the level to beat for the bears.
Open Interest In CME Bitcoin Futures Slides As Market Sapped By Surging DeFi
Bitcoin futures listed on the Chicago Mercantile Exchange (CME) have lost their shine in recent weeks, and that’s due in part to explosive growth in decentralized finance (DeFi), an analyst says.
* According to data source Skew, open interest or open positions in CME bitcoin futures fell to $345 million on Friday – the lowest level since May 4. The CME is considered synonymous with institutional activity.
* Open interest is down nearly 64% from the record high of $948 million on Aug. 17. On the same day, bitcoin’s price clocked a 12-month high of $12,476.
* Open position in bitcoin futures across all cryptocurrency exchanges stood at $3.6 billion on Friday, having peaked at $5.7 billion on Aug. 17.
* While futures open interest has subsided, the total value locked into the DeFi platforms has nearly tripled to $10.9 billion over the past two months, according to data provider DeFi Pulse.
* “Crypto money has gone into DeFi and yield farming, suppressing futures premium and making cash and carry trades unattractive for traditional/institutional investors,” Denis Vinokourov, head of research at London-based prime brokerage Bequant, told CoinDesk.
* As money began flowing into DeFi from the futures market in the second half of August, the spread between futures and spot prices, known as the “futures premium,” began falling.
* The premium on major exchanges declined from 12% to 2.5% in the second half of August and has remained sidelined near 7% ever since, per Skew data.
* The near-halving of the premium in August has likely kept traditional investors and institutions from putting money into futures over the past four weeks.
* That’s because returns on cash and carry trades, a popular strategy among institutions, dropped with the premium.
* Cash and carry trades involve buying an asset in the spot market and selling a futures contract when the latter is trading at a premium to the spot price.
* The strategy seeks to profit from the premium, which eventually converges with the spot price on the expiry date. The higher the premium, the higher is the reward on the carry trades and vice versa.
* Additionally, bitcoin’s 7.5% price drop seen in September, the biggest monthly decline since March, likely contributed to the decline in open interest on CME and other exchanges.
* “September’s decline in bitcoin has significantly affected short-term optimism in the market with Open Interest falling across all exchanges and derivatives products,” said Matthew Dibb, CEO of Singapore-based Stack Funds.
* “We expect that further enhanced selling pressure will lead open interest to sub-$3 billion levels seen in April,” Dibb said.
Bitcoin is currently trading largely unchanged on the day at $10,688, according to CoinDesk’s Bitcoin Price Index.
Bitcoin Options Volume On CME Jumps 300% As Traders Take Bullish Bets
Activity in bitcoin options listed on the Chicago Mercantile Exchange (CME) surged Wednesday as investors traded call options, or bullish bets.
* According to data source Skew, the CME traded $48 million worth of options during the day, the highest daily volume figure since July 28.
* The number marks a 300% rise from Tuesday’s figure of $12 million.
* “The CME options had a strong session, and the spike in the volume was mainly due to increased activity in call options,” Skew’s CEO Emmanuel Goh told CoinDesk over Telegram.
* Options are derivative contracts used to hedge against sudden price swings or uncertainty in the spot market.
* A call option gives the holder the right to buy or sell the underlying asset at a predetermined price on or before a specific date; a put option represents a right to sell.
* Volumes surged as some traders took $14,000 and $16,000 strike prices and $18,000 and $20,000 strike prices for the December 2020 and March 2021 expiry contracts, Skew noted early Thursday.
* These can potentially be bullish structures [bull call spreads], Vishal Shah, an options trader and founder of derivatives exchange Alpha5, told CoinDesk, adding that traders are unlikely to sell spreads in the current low volatility environment.
* “The likely case is that we’re seeing some strategic gearing for the topside,” Shah said.
* To simplify, traders likely bought call options at $14,000 expiring in December and simultaneously sold December expiry calls at $16,000. Similarly, calls expiring in March 2021 were bought at $18,000 and sold at $20,000.
* Traders employ bull call spreads when they expect the underlying asset to chart a limited rally in the near term.
* The data suggests some traders foresee a bitcoin rally, but believe the upside will be capped near $16,000 until the end of December. Further, they expect prices to remain below $20,000 till the end of the first quarter of 2021.
* Bitcoin is currently trading near $10,600, trapped in a narrowing price range for the third week.
A breakout would imply an end of the pullback from the August high of $12,476 and would expose resistance above $11,000.
Alternatively, a range breakdown may invite stronger chart driven selling, possibly yielding a re-test of September lows below $9,900.
Surging Bitcoin Futures Volume Highlights Increasing Institutional Interest
Futures volume and open interest spiked at derivatives exchanges after Bitcoin price hit $11.7K, highlighting increasing participation from institutional investors.
On Oct. 12 Bitcoin price (BTC) pushed above $11,700 on Binance and data shows trading at derivatives exchanges also began to spike.
According to data from Skew, CME Bitcoin futures open interest has started to recover. The term open interest refers to the total amount of long and short contracts open at a given time and it is typically used to gauge trading activity in the futures market.
The daily volume across other institution-focused platforms, including LMAX Digital and Bakkt, also remains high. This suggests that institutional volume is growing in general after BTC’s strong rally.
What’s Behind The Surge?
In the past two months, three multi-billion dollar conglomerates publicly announced significantly sized investments in Bitcoin.
First, MicroStrategy, a publicly-listed U.S. company on the Nasdaq, said it invested $425 million in Bitcoin. The company said it would treat BTC as its primary treasury asset, essentially as a hedge against inflation.
Then, the $81 billion payments conglomerate Square followed with a $50 million investment. Square reportedly invested 1% of its portfolio into BTC, demonstrating strength in its long-term growth.
On Oct. 13, as Cointelegraph reported, Stone Ridge, a $10 billion asset manager, purchased 10,000 BTC. The company is now the third major corporation in the U.S. to make a major Bitcoin investment in the past two months.
Following the high profile investments into Bitcoin from MicroStrategy, Square, and Stone Ridge, institutional demand for Bitcoin might be growing naturally. Researchers at Skew said:
“CME #bitcoin futures open interest is rebounding as the carry trade reopens. Watch the COT report this weekend for potentially more leveraged funds shorts.”
Bitcoin futures data from Digital Assets Data also show a noticeable uptick in volume over the past 2 weeks.
It is possible that CME Bitcoin futures open interest has been recovering after the September monthly expiration. Every monthly CME futures contract expires on the last friday of every month. Since the futures market resets after every expiration, open interest drops with it in tandem.
But the overall increase in volume across various institutional platforms indicates that institutional demand is likely rising.
OTC Deals Among Whales Might Also Be Increasing
Since early October, researchers at Whalemap have said OTC deals among whales have been increasing.
Whalemap, a platform that tracks whale activity and the trades of high-net-worth investors, found that in-person deals have noticeably spiked especially before and after major announcements. They said:
“I was looking forward to seeing if more OTC deals will come through, and they did. I am leaning more and more towards the idea that you can see these OTC deals happening on-chain before the news are released.”
Atop the high institutional and whale activity, overall spot market volume has been increasing simultaneously.
Aggregated Daily BTC Spot Volumes.
During an uptrend, high spot volume is critical to sustain the upward momentum as it shows genuine interest in Bitcoin from retail investors.
Institutions Take Record Bullish Bets In Bitcoin Futures, Shrugging Off Exchange Missteps
Institutions recently raised their bullish bets in bitcoin (BTC) futures listed on the Chicago Mercantile Exchange (CME) to the record level set last month amid signs of market maturity.
* In the week ended Oct. 13, institutional investors increased long positions by over 9%, taking the tally of bullish bets to the record high of 3,500 contracts reached in mid-September.
* The numbers were revealed by the Commitment of Traders (COT) report published by the U.S. Commodity Futures Trading Commission (CFTC) on Friday.
* The cryptocurrency’s price reached multi-week highs above $11,700 during the seven days to Oct. 1, confirming a breakout on technical charts.
* BTC’s recent resilience to several exchange-related issues may have given institutions the confidence to increase their bullish bets.
* The cryptocurrency remained largely bid above $10,000 earlier this month despite news of the KuCoin exchange hack and U.S. regulators bringing criminal and civil charges against BitMEX.
* Similarly, buyers defended support at $11,200 on Friday after prominent crypto exchange OKEx suspended withdrawals.
* ‘Had these events happened last year, the [bearish] impact on bitcoin’s price would have been much greater,” Sui Chung, CEO of CF Benchmarks, said in a statement to CoinDesk.
* The derivatives market is now less dependent on exchanges like BitMEX and OKEx than a year ago.
* In September 2019, the two exchanges accounted for over 70% of the global BTC derivatives’ open interest. That number has now dropped to 40%.
* As such, the cryptocurrency is less sensitive to exchange-related issues. That’s a testament to the growing maturity of the cryptocurrency space, according to Chung.
Are Speculators Bearish?
* Speculators or leveraged funds – hedge funds and various types of money managers that, in effect, borrow money to trade – increased their short positions by 4% to 14,100 – the record low seen in August.
* That does not necessarily imply bearish implications for price.
* According to Patrick Heusser, a senior cryptocurrency trader at Zurich-based Crypto Broker AG, cash and carry trading may have pushed bearish bets to record highs.
* “Cash and carry” is an arbitrage strategy that involves buying the asset on the spot market and taking a sell position in the futures market when the latter is trading at a significant premium to the spot price.
* Futures prices converge with spot prices on the day of the expiry, yielding a risk-free return to a carry trader.
Institutional Frenzy: CME Becomes 2Nd Biggest Bitcoin Futures Market
The Chicago Mercantile Exchange (CME) just became the second-biggest Bitcoin futures exchange in open interest behind OKEx, buoyed by rising institutional demand.
The CME Bitcoin futures market overtook Binance Futures to become the second-biggest Bitcoin (BTC) futures exchange by open interest. The data shows that the institutional volume is rapidly gaining a larger share of the cryptocurrency market.
On Oct. 10, Skew reported that the CME Bitcoin futures market’s open interest rose sharply by 1,500 contracts. Since then, within three days, the price of BTC surged 9% to over $13,000.
The growing open interest of CME’s futures contracts on BTC is likely to have a positive effect on BTC price, particularly as a recent study found that “CME Bitcoin futures contribute more to price discovery than its related spot markets.”
A clear spike in institutional demand for Bitcoin in a short period
For many years, the Bitcoin futures market was dominated by two key players: BitMEX and OKEx. In the past year, new-generation futures exchanges began to swiftly expand, which led Binance Futures, Bybit, and Huobi to compete against the likes of BitMEX.
The CME launched its Bitcoin futures contracts on Dec. 17, 2017. Within a span of three years, it evolved into the second-largest BTC futures exchange by open interest, Skew reports.
The term open interest refers to the sum of the value of all long and short futures contracts that are actively open. It is used to gauge the activity of the market by measuring the amount of capital that is deployed onto the futures market.
Data from Skew shows CME now accounts for $790 million worth of BTC long and short contracts. It falls merely $19 million behind OKEx, which has been the dominant futures exchange throughout 2020.
The rapid increase in the open interest of the CME Bitcoin futures market reflects growing institutional demand for three key reasons.
First, throughout the past three days, the overall volume of the Bitcoin futures market rose substantially. Hence, CME’s open interest rose higher than other retail-focused platforms, which also saw a large spike in volume.
Second, major institution-focused markets, including the Grayscale Bitcoin Trust (GBTC), reported a massive upsurge in institutional inflows. Cointelegraph reported that Grayscale saw a $300 million upsurge in net assets under management (AUM) in one day, albeit the rising BTC price primarily caused the AUM to rise.
Third, the options market has also achieved a record-high daily volume, which is also preferred by full-time traders and high-net-worth investors.
Would The Institutional Frenzy Continue?
High profile investors, like Chamath Palihapitiya, the CEO of Social Capital, believes more banks and institutions would soon support Bitcoin. He said:
“After PayPal‘a news, every major bank is having a meeting about how to support bitcoin. It’s no longer optional.”
Institutions are primarily exploring Bitcoin as an inflation trade and a long-term allocation, as the billionaire Wall Street investor Paul Tudor Jones said. But technical analysts state that the short to medium-term outlook remains bright for BTC/USD.
Bitcoin saw its highest daily candle close since Jan. 15, 2018, meaning the price of BTC is on the verge of breaking out across all time frames.
As Cointelegraph reported, traders have emphasized the bullishness of the weekly and monthly log charts of Bitcoin. If BTC remains above $13,000 at the weekly close and stays above $12,500 until the month’s end, it could signify a compelling technical breakout.
The confluence of macro as well as a favorable technical structure could further intensify the demand for Bitcoin as institutions are starting to increasingly embrace the world’s biggest cryptocurrency.
CME Overtakes OKEx As Largest Bitcoin Futures Market
Bitcoin derivatives trading is on the rise as institutional investors flood the market.
CME Group has become the world’s largest Bitcoin (BTC) futures market following a surge in open interest over the past month, industry data shows.
In a Friday tweet, Arcane Research announced that CME had overtaken OKEx as the world’s largest Bitcoin futures market. Citing data from Skew, a market intelligence firm, Arcane said open interest in CME’s Bitcoin futures contract has reached $1.16 billion. OKEx, meanwhile, registered $1.07 billion.
“Institutional investors are here,” Arcane said.
CME’s Bitcoin futures market has more than doubled over the past month, with more traders seeking exposure to the flagship cryptocurrency as it surged to near all-time highs. Future trading can sometimes invoke heavy volatility, especially as expiry nears, as contract holders adjust their positions before that date.
Its November futures contract, BTCX20, expires on Friday.
Cryptocurrency exchanges Binance and Huobi have also emerged as major futures players. Based on open interest, they are the third and fourth largest BTC futures platforms, respectively.
Bybit, which also appeared on Arcane’s list, announced earlier this week that it will soon launch a quarterly Bitcoin futures contract.
The futures market is an important bellwether for Bitcoin adoption because it means traditional investors are getting into the mix. Whereas the 2017 bull market was driven largely by retail traders, the current uptrend has been fueled by deeper institutional pockets.
CME, in particular, is becoming vital to Bitcoin price discovery, according to investment manager Wilshire Phoenix.
CME’s significance is “not only demonstrated through trading volume and open interest,” Wilshire said, “but also by influence on spot price formation.
The Bitcoin price is currently consolidating in the $16,500 range following a heavy Thanksgiving day selloff.
Bitcoin Options Volume Crosses $1B For The First Time Ever
Open interest for Bitcoin options almost touched $6 billion.
Amid an ongoing bull run of Bitcoin (BTC), Bitcoin options are hitting a new historical milestone. Bitcoin options are derivative contracts that grant the holder the right, but not the obligation, to buy or sell BTC at a predetermined price.
According to data from Skew, Bitcoin options volumes crossed $1 billion on Dec. 16. Skew announced the news Thursday on Twitter, noting that Bitcoin options saw its “first $1 billion day.”
Deribit, a major global crypto futures and options exchange, had the largest BTC options volume on the day at $879 million. The exchange has emerged as the most popular BTC options exchange, historically dominating the Bitcoin options market.
Bit.com, the cryptocurrency derivative exchange owned by Bitmain-backed financial service platform Matrixport, saw the second largest BTC options volumes on the day. According to Skew, Bit.com’s maximum Bitcoin options volume accounted for about $84 million.
Major global crypto exchange OKEx is the third top BTC options platform in the list, with a maximum options volume standing at $62 million on Dec. 16.
The Bitcoin options market has seen a parabolic growth in 2020 as even weekly volume fell short of the $200 million mark at the start of the year.
The volume growth comes alongside a massive increase in Bitcoin options open interest, or OI, which stands for the total number of contracts outstanding in the market and not yet settled. According to data from Skew, Bitcoin options’ OI almost touched a $6 billion threshold on Dec. 16, surging from around $600 million in early January.
The OI for Bitcoin options has been steadily increasing over the course of 2020. As previously reported by Cointelegraph, high OI rates are related to the increasing liquidity of options as well as growing number of market participants.
Spikes in Bitcoin options’ OI can also be fueled by larger macroeconomic events like the decentralized finance hype and long term effects of the Bitcoin halving on the markets. Options are a derivative tool with several possible uses, including insurance for existing positions against possible drops, or speculating on price with an asymmetric risk-return profile.
New record-breaking volumes in the Bitcoin options market come amid Bitcoin price hitting its new historical highs. On Dec. 16, Bitcoin posted a new record high by surpassing the $20,000 threshold for the first time since 2017. The largest cryptocurrency continued gaining momentum, briefly rising to $23,500 on Dec. 17.
Deribit’s New Options Allow Bitcoin Traders To Bet On Rally To $100K
Bitcoin traders can now bet on a potential price rise to $100,000 via crypto derivatives exchange Deribit’s new options contracts.
Call and put options at the $100,000 strike price expiring on Sept. 24, 2021, went live on Deribit Thursday.
“A few trades have taken place, as thus far 45 [call option] contracts have been traded,” Luuk Strijers, chief commercial officer at Deribit, told CoinDesk.
At press time, the $100,000 call option is holding a cumulative open interest of 29.4 contracts. Open interest refers to the number of contracts traded but not liquidated via offsetting positions. The $100,000 put option is yet to register any activity.
Options are derivative contracts that give the purchaser the right, but not the obligation, to buy or sell the underlying asset at a predetermined price on or before a specific date. A call option represents the right to buy, and the put option gives the right to sell. On Deribit, one options contract represents the right to buy or sell one bitcoin (BTC, -2.05%).
Theoretically, the purchase of a $100,000 call is a bet that bitcoin will rise above that level on or before Sept. 24, 2021, making the option “in-the-money”. Traders, who expect prices to more than quadruple over the next three quarters from the current price of $23,200, can express their bullish view via the $100,000 call.
Currently, that call option is, as traders say, deep out-of-the-money (that is, the spot price is well below the strike price) and trading at a relatively low price of 0.0475 BTC ($1,090 at press time). By comparison, the $24,000 call is trading at 0.2870 BTC ($6,588).
Traders often buy deep out-of-the-money calls during strong bull runs. That’s because they are relatively cheap and gain significant value amid a continued rally in the spot market, helping buyers make big money on small investments.
Deribit’s decision to launch options at the $100,000 strike comes in the wake of bitcoin’s move into the uncharted territory well above $20,000. The cryptocurrency rose swiftly through $21,000 and $22,000 to set a record high of $23,770 on Thursday. The crypto asset changing hands near $23,100 at press time, according to CoinDesk 20 data.
The decision to launch options for the $100,000 strike expiring in September 2021 was based on market demand and in line with Deribit’s policies, Strijers said.
Record $6.5B Bitcoin Options Open Interest Follows BTC All-Time High
Bitcoin options open interest reached a record-high $6.5 billion as investors continue to increase their optimistic long-term bets.
The open interest on Bitcoin (BTC) options contracts has reached a new all-time high at $6.5 billion on Dec. 17. That figure represents a three-fold increase from 90 days ago and is proof that the market has grown significantly in the past 6-months.
Investors must keep in mind that even though a $6.5 billion open interest is an impressive number, it doesn’t necessarily mean that professional investors are bullish or bearish.
Call options provide buyers with an opportunity to leverage without running the risk of liquidation. Meanwhile, put options are an excellent way to hedge against a potential future sell-off. Thus, both add to the total open interest seen in the current figure.
A more interesting fact to analyze is the options profile set to expire over the next 30 days completely differs from longer-term ones. Bitcoin’s 63% bull run since November certainly contributed to this distortion, as $22,000 and higher strikes were not frequent.
Therefore, such a sizeable open interest near the $16,000 strike can be explained by pre-rally market levels.
Notice how after the recent rally, a decent volume has gone through $24,000 and $28,000, totaling 14,800 BTC contracts. Unlike the ultra-bullish call options above $32,000, these options are not cheap.
This means someone effectively paid up $1,200 for the opportunity to acquire Bitcoin for $24,000 on Dec. 25, less than ten days from the expiry. For a comparison, that’s ten times more than the $32,000 call option traded.
Although it’s still early to understand how professional traders are positioned for Friday’s Dec. 25 expiry, the premiums paid on these options seem excessive for such a short period.
Longer-Term Options Are Even More Bullish
A very different pattern emerges when focusing exclusively on longer than 30-day expiries that favor ultra-bullish calls. Unlike short-term ones, these aren’t cheap regardless of requiring 70% or higher upside.
This time around, the $36,000 strike dominates, followed by the incredibly optimistic $52,000 level. Those options require 40% or higher upside to 52,900 BTC contracts, totaling $1.2 billion in open interest.
The largest open interest position for the $36,000 call option stands at the Jan. 29 expiry. Those traded for as high as $690 a piece recently, thus not a cheap gamble available for anyone.
Instead of gauging investors’ optimism by how high call options have been bought, investors should turn to the skew indicator. One should keep in mind that ultra-bullish options are relatively cheap for 40 to 50 days calendar expiries such as Jan. 25.
Skew Shows Investors Are Less Bullish
When analyzing options, the 30% to 20% delta skew is the single most relevant gauge. This indicator compares call (buy) and put (sell) options side-by-side.
A 10% delta skew indicates that call options are trading at a premium to the more bearish/neutral put options. On the other hand, a negative skew translates to a higher cost of downside protection, indicating bearishness.
According to the data shown above, the last time some bearish sentiment emerged was Nov. 26, while BTC crashed 15%, testing the $16,200 level. This was followed by a period of extreme optimism as the 30-20% delta skew surpassed 25.
This indicator is the most substantial evidence a trader interested in derivatives needs to recognize the current sentiment surrounding Bitcoin options. Whenever it surpasses 15, it reflects fear of potential price upside from arbitrage desks and professionals, and as a result is considered bullish.
Therefore, the recent adjustment to 10 from 15 points as Bitcoin reached a new all-time high at $23,888 indicates a healthy market where investors have yet to become overly optimistic.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
The Institutional Herd Is Here: Bitcoin Volume On CME, LMAX Hits New Records
The institutional herd has arrived to the Bitcoin market as institutional platforms see record-high volume.
The daily volume of the CME Bitcoin futures market and LMAX achieved a new all-time high on Monday. The data shows that institutional demand for Bitcoin (BTC) is rapidly surging as major public funds continue to accumulate.
Institutional Appetite For Bitcoin Is Accelerating
According to analysts at Arcane Research, the daily volume of LMAX Digital reached a record-high at $2.62 billion.
LMAX is a trading platform that tailors to institutional and accredited investors, unlike retail-focused platforms such as Coinbase and Binance. Arcane Research’s head of research, Bendik Norheim Schei, wrote:
“Want another ‘Institutional investors are here’ chart? Here’s the daily volume on the institutional platform LMAX Digital. New all-time high volume of $2.6 billion yesterday.”
During the same period, the CME Bitcoin futures market also achieved an all-time high volume at $2.7 billion in dollar terms.
On CME, traders use Bitcoin-backed contracts, and as such, when the price of Bitcoin increases, so does the value of contracts.
The massive increase in the trading volume of institutional platforms comes as funds are aggressively investing in Bitcoin.
On Monday, Anthony Scaramucci, former White House director of communications, said his hedge fund, SkyBridge, entered a $300 million Bitcoin position from November 2020 to December 2020. He said:
“We @SkyBridge entered the #bitcoin market in Nov/Dec with a now ~$300mm position, and today launched a #bitcoin fund offering for accredited investors. We believe we’re in the early innings of a new asset class with tremendous upside.”
With SkyBridge’s investment in Bitcoin, nine funds now hold $23 billion worth of Bitcoin, according to technology researcher Kevin Rooke.
9 funds now hold over $23 billion of Bitcoin. pic.twitter.com/sfffwYK4oA
— Kevin Rooke (@kerooke) January 4, 2021
Grayscale still holds the most Bitcoin at $19 billion through its flagship product, Grayscale Bitcoin Trust.
GBTC is an alternative to an exchange-traded fund in the United States in that institutions and accredited investors can gain exposure to Bitcoin through a strictly regulated vehicle.
What’s Next For BTC?
Despite the massive inflow of institutional capital into the Bitcoin market, the price of BTC sharply corrected on Tuesday.
Bitcoin’s price dropped by over 15% on a single day after more than $2 billion worth of futures contracts were liquidated.
Ki Young Ju, CEO of CryptoQuant, said that derivatives traders are now uncertain and fearful, based on the declining leverage across major exchanges. He said:
“This indicator is better than the Fear & Greed index. $BTC derivative traders are uncertain about the next move, and scared.”
Estimated Leverage Ratio across exchanges is decreasing.
— CryptoQuant.com (@cryptoquant_com) January 5, 2021
In the near term, this could result in a consolidation period where Bitcoin sees lower volatility following a massive uptrend.
In the last 48 hours, Bitcoin has still been able to remain above the $30,000 support level, which is an optimistic sign of positive momentum.
Whale clusters suggest that the next major support area is $29,300, which would be a crucial technical level to defend for the ongoing rally to see renewed momentum.
Investors Can Now Trade Bitcoin Futures Without An Expiry Date
EQUOS has introduced a Bitcoin perpetual futures contract, possibly setting the stage for wider professional adoption of digital assets.
EQUOS, a Singapore-based digital currency exchange operated by Diginex, has announced the launch of a new Bitcoin (BTC) futures product without any settlement dates, marking a substantial leap in the BTC derivatives market.
The firm introduced the BTC Perpetual Futures Contract on Thursday, a product it says is “well suited to the current trading environment.” The Perpetual contract is geared toward professional traders with various risk profiles, with prices and liquidity provided by independent market makers.
The exchange claims that its new BTC contract is backstopped by its liquidity reserves, which are partially funded through fees and trading revenue.
Unlike traditional futures products, a perpetual futures contract doesn’t have a fixed expiry or settlement date, which means the user can hold the position for as long as they wish. Perpetual contracts on Bitcoin are currently offered by BitMEX, one of the largest crypto derivatives platforms.
Richard Byworth, CEO of Diginex, said the new futures contract is intended to bring wider functionality to the crypto derivatives market, a move he says will “facilitate wider institutional and professional trader adoption of cryptoassets.”
“This is just the first in a product suite that will offer investors more dynamic hedging tools, fairer liquidation, a platform that is not trading against its users and reputational protection for investors seeking a KYC/AML compliant ecosystem.”
The Bitcoin futures market has exploded over the past few quarters, highlighting growing institutional uptake of the digital asset. EQUOS claims that crypto derivatives grew at over four times the pace of the spot market in the third quarter, reaching a daily volume peak of $67 billion at the end of November.
CME Becomes Biggest Bitcoin Futures Exchange As Institutional Interest Rises
Chicago Mercantile Exchange (CME) has taken the prime spot on the list of the biggest bitcoin futures trading platforms, indicating a continued rise in institutional participation.
* With an open interest of $2.1 billion, the CME accounted for 19.09% of the global tally of $11 billion on Wednesday – the highest among major exchanges tracked by Skew, a crypto derivatives research firm.
* OKEx was the second-biggest exchange with an open interest of $1.97 billion, while Binance, the word’s biggest crypto spot exchange by trading volume, ranked third with $1.82 billion.
* Open interest refers to the number of contracts traded but not squared off with an offsetting position.
* Looking back a year, the size of the futures market was quite small. Global open interest stood at $3 billion on Jan. 7, 2020, of which the CME contributed just 7% or $224 million.
* The CME has steadily climbed ranks over the past 12 months and more so over the past three months alongside bitcoin’s meteoric price rally from $10,000 to record highs above $37,000.
* The exchange is considered synonymous with institutional trading, as it prefers to trade futures of any product via an established and regulated exchange like the CME.
CBOE Keen To Meet High Demand For Crypto From Retail, Institutions, Says CEO
Ed Tilly, the CEO of Cboe Global Markets, says that the Chicago-based exchange holding company hasn’t “given up on” crypto, despite earlier setbacks.
Chicago-based exchange holding company Cboe markets — an early pioneer of regulated Bitcoin futures trading in the United States — plans to build out more futures products within the crypto sector in future.
In a new interview with BNN Bloomberg on March 25, CEO Ed Tilly said that the company’s not always straightforward journey until now by no means dampened its commitment.
Having been the first North American exchange to list Bitcoin (BTC) futures back in Dec. 2017, the Chicago Board Options Exchange, or CBOE, later ended the product in 2019, faced with stiff competition from popular BTC futures on the Chicago Mercantile Exchange, or CME. This notwithstanding, Tilly said:
“We’re still interested in the space, we haven’t given up on it. We’re keen on building out the entire platform. There’s a lot of demand from retail and institutions, and we need to be there.”
Another frustration has been U.S. regulators’ reluctance to give the green light to a Bitcoin exchange-traded-fund, or ETF, with Cboe already having unsuccessful attempts to list one. After a recent, withdrawn proposal, Cboe’s BZX exchange is now waiting on the Securities and Exchange Commission’s initial decision on its latest March filing to list the VanEck Bitcoin ETF. Tilly told reporters the company is “very keen to move along approval” for the VanEck product.
VanEck has meanwhile fallen out of favor with former partner SolidX over the Bitcoin ETF filing, with the latter filing a lawsuit accusing VanEck of plagiarizing its work in its earlier ETF application this January.
CME Group Set To Launch Micro Bitcoin Futures
The new futures contract will launch on May 3, 2021, pending regulatory approval.
The Chicago Mercantile Exchange, or CME, has unveiled plans to launch a new Bitcoin (BTC) derivatives product that will enable traders to speculate on fractional units of the flagship digital currency.
CME Group’s Micro Bitcoin futures contract, which is set to launch May 3 pending regulatory approval, will be worth 0.1 BTC. The smaller contract size provides market participants with an additional tool to hedge their Bitcoin price risk, CME said Tuesday. CME’s current Bitcoin contract unit is 5 BTC.
Tim McCourt, CME Group’s global head of equity index and alternative investment products, explaine:
“The introduction of Micro Bitcoin futures responds directly to demand for smaller-sized contracts from a broad array of clients and will offer even more choice and precision in how participants can trade regulated Bitcoin futures in a transparent and efficient manner at CME Group.”
CME launched its Bitcoin futures contract in December 2017. The Chicago Board Options Exchange, Its larger crosstown rival, was the first to introduce the derivatives contract during the same month but has since abandoned Bitcoin futures altogether.
CME has noted a steady uptick in crypto derivatives trading since the first Bitcoin futures contract launched more than three years ago. As Cointelegraph previously reported, average daily trade volumes for CME Bitcoin futures jumped 57% in January. Interest is likely to accelerate as the Bitcoin bull market brings new investors into the fold.
There’s also evidence that the broader crypto derivatives market is heating up. In December 2020, crypto derivatives trades were valued at more than $1.3 trillion, accounting for 55% of the overall market, according to CoinMarketCap.
State Street To Provide Tech For Institutional Bitcoin Trading Platform
Currenex, a State Street-owned FX platform, will provide its infrastructure for the Pure Digital cryptocurrency exchange.
State Street, the second-oldest operating bank in the United States, is moving into the cryptocurrency industry by agreeing to provide its technology for a new crypto trading platform.
Currenex, a foreign exchange technology provider owned by State Street, has entered into an agreement with crypto firm Puremarkets to provide its trading infrastructure and tech for the new crypto trading platform Pure Digital. Announcing the news Thursday, Pure Digital said that it will also collaborate with State Street to further explore the digital currency trading industry.
According to the announcement, Pure Digital will be a fully automated over-the-counter market for digital assets and cryptocurrencies, with physical delivery and bank custody. Scheduled for launch in mid-2021, the new platform will reportedly allow institutional investors to trade using bilateral credit and multiple custody solutions. “Trading participants will be free to leverage their preferred digital asset custody solutions and manage risk through a smart custody routing mechanism,” the announcement notes.
State Street announced in late March that the bank has been exploring the role of Bitcoin (BTC) in multiasset portfolios over the last nine years. “The case has yet to be made for Bitcoin as an equity hedge, though it may be heading in that direction. The key for investors is to combine their preferences for risk mitigation and upside potential with Bitcoin’s expected diversification and return properties to determine their optimal allocation,” the bank wrote.
State Street has been actively exploring the cryptocurrency industry in recent years. In late 2019, the bank announced a digital asset pilot in collaboration with crypto exchange Gemini. The pilot built on the research and development in the digital asset space to combine Gemini Custody with State Street’s back-office reporting.
Earlier this year, Bank of New York Mellon announced plans to hold, transfer and issue Bitcoin and other cryptocurrencies as an asset manager on behalf of its clients.
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