Ultimate Resource For Open Interest In Bitcoin Options, 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. Ultimate Resource For Open Interest In Bitcoin Options And Futures And Institutional Demand
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.
CME Group’s Micro Bitcoin Futures Open For Trading
The exchange is giving traders another way to bet on bitcoin.
The Chicago Mercantile Exchange launched its “Micro Bitcoin” futures product in an attempt to capitalize on bitcoin’s price rally this year and build upon the successful launch in 2017 of a regular futures contract for the largest cryptocurrency.
The futures contract was announced in late March but has just opened for trading.
* “At one-tenth the size of one bitcoin, micro bitcoin futures will provide an efficient, cost-effective way for a broad array of market participants – from institutions to sophisticated, active traders – to fine-tune their bitcoin exposure and enhance their trading strategies,” Tim McCourt, head of equity index and alternative investment products at CME Group, said in a press release.
* “By lowering the barrier of entry, more traders will be able to gain exposure to bitcoin,” said John Bartleman, president of TradeStation Group, the parent company of an online trading platform that will offer clients micro BTC futures.
* “At the 6 p.m. open last night, we executed the first block trade of 140 lots for two of our clients – Genesis Trading and XBTO. These smaller right-sized CME micro bitcoin futures contracts will make crypto futures trading more accessible for traders of all sizes,” wrote Brooks Dudley, global head of digital assets at brokerage firm ED&F Man Capital Markets.
* The CME micro bitcoin futures are cash-settled and based on the CME CF Bitcoin Reference Rate.
Institutions Are Accumulating
Despite all the noise in the market today, institutions are accumulating Bitcoin with ever-growing conviction, offering compelling evidence that the bull market is far from over.
Bitcoin Treasuries, which tracks corporate and institutional exposure to BTC, reported Saturday that institutions have accumulated 215,000 Bitcoin in the past 30 days. That’s equivalent to roughly $10 billion.
Institutions have accumulated 215,000 #bitcoin in the past 30 days.
— Bitcoin Magazine (@BitcoinMagazine) May 15, 2021
Corporations with Bitcoin on their balance sheets have generated a significant return on investment. As Bitcoin Treasuries reported on May 12, the value of MicroStrategy’s BTC reserve has grown by 2.3 times. The value of Square’s Bitcoin stash is up 2.1 times. Riot Blockchain’s holdings have increased in value by 9 times. These figures have declined slightly amid the latest market correction.
Institutions have been flooding Bitcoin for the better part of a year. These so-called smart money investors are one of the biggest reasons for BTC’s ascent from just $10,000 last summer to a high of around $64,000 in April.
CME Returns To Second Place In Latest Rankings Of Bitcoin Futures Exchanges
The global derivatives giant improves from fifth place earlier this week. Binance ranks first.
The Chicago Mercantile Exchange (CME), seen as a proxy for institutional trading activity, has risen back to the number two spot on the list of biggest bitcoin futures exchanges by open interest.
However, the climb does not necessarily imply an uptick in institutional participation but looks to have stemmed from a relatively bigger drop in open interest on other exchanges on Wednesday.
Bybit’s open interest fell by nearly $1 billion on Wednesday, while the value of open positions on OKEx declined by $1.2 billion; Binance’s total dropped by $1.7 billion. The CME’s tally declined by just $30 million.
The CME now accounts for $1.92 billion, or 15.5%, of the total open interest of $12.38 billion, according to data source Skew.
That makes the global derivatives giant the second-largest bitcoin futures venue – a significant improvement from its fifth place at the beginning of the week.
$8.6B IT Firm Globant Revealed As Bitcoin’s Latest Institutional Buyer
The technology solutions firm revealed it purchased $500,000 worth of BTC during the first quarter of 2021.
Filings with the United States Securities and Exchange Commission reveal that major IT conglomerate Globant has become the latest big firm to invest in Bitcoin (BTC).
The firm declared its crypto-asset purchases for the first three months of the year in a statement to the SEC made on Tuesday, stating:
“During the first quarter of 2021, the Company purchased an aggregate of [$500,000] in crypto assets, comprised solely of bitcoin.”
The company’s crypto investments and expenses were listed among its “intangible assets,” alongside licenses, customer relationships, customer contracts, and non-compete agreements in the company’s possession.
Globant stated that it declares Bitcoin as an intangible asset because it “lacks physical form and there is no limit to its useful life.” It added that any gains made on digital assets will not be recognized until they are sold.
Globant is an IT and software development company founded in 2003 that operates predominantly in Latin America but also has offices in the United Kingdom and the United States.
Despite revealing the presence of Bitcoin on its balance sheet, the firm has not revealed the cost-basis paid for its BTC stash. However, with its purchases coming in the first quarter, any BTC buys made from the second week of February onward would currently be sitting at a loss.
While numerous publicly traded companies have purchased BTC in recent months, many are currently underwater on their BTC buys. According to Bitcoin Treasuries, six publicly listed firms are currently in the red on their BTC acquisitions now that Bitcoin has retraced back to its early-February price levels.
Japanese online gaming firm Nexon announced its $100 million BTC purchase on April 28, with the Bitcoin now worth $67 million. Seetee, a subsidiary of Norwegian energy giant Aker, revealed a $58.6 million Bitcoin purchase in early March that has declined in value to $44.9 million as of Tuesday. Chinese tech company Meitu, which announced $49.5 million in Bitcoin buys during March and April, has seen the value of its crypto holdings shrink to $36 million.
Financial consulting firm Brooker Group is also down $2 million on its $6.6 million BTC buy, while enterprise cloud platform Phunware has seen the value of its $1.5 million Bitcoin stash fall by one-third since purchasing.
Multinational investment firm BlackRock also appears to have lost 33% of its $360,000 BTC acquisition. However, the firm acquired the position in March as profits from a futures trade it entered into in January, meaning BlockRock did not spend any fiat to accumulate its crypto.
For The Long Haul? When Bitcoin Nosedived, Institutions Held Fast
Institutional investors know crypto assets are volatile: “They’re making a generational bet and are not deterred by a few weeks of volatility.”
Mid-May’s price plunge was one of crypto’s wildest pullbacks in recent years, a tumble that eliminated nearly $1 trillion from crypto’s market value.
The industry had soared to new heights a month earlier, with Bitcoin (BTC) reaching almost $64,000, driven in good part by institutional investors. Now that some calm has returned to the market, bears are asking: How did institutions behave during the recent collapse? Did they jump ship or hold firm with their investments? And what impact might the pullback have in future institutional participation in the cryptocurrency and blockchain industry?
“Institutional investors mostly held firm,” Oanda senior market analyst Edward Moya told Cointelegraph, “and after the dust settled, [investors] still seemed confident with their longer-term bets.” Also, Chainalysis chief economist Philip Gradwell wrote in a May 19 market analysis, “It also does not appear that institutions are significant sellers, although they may be more cautious as buyers right now.”
On the other hand, analysts from JPMorgan told their clients that institutional investors abandoned Bitcoin for gold during the swoon. And then there was Elon Musk, whose May 12 tweet said that Tesla would no longer accept Bitcoin in exchange for its automobiles — citing concerns about BTC’s energy consumption — was blamed by many for accelerating Bitcoin’s market descent. It was already declining but fell another 40% after his tweet and has since had trouble recovering to reclaim $40,000.
Economist Gradwell sought to put things in some historical context, noting that Bitcoin inflows to exchanges were relatively low compared with past sell-offs. This suggested “that much of the selling is from people with assets already on exchanges, which tend to be retail investors.”
Many crypto veterans appeared to agree that the volatility was propelled by retail investors — not institutions. Anyblock Analytics GmbH’s co-founder and chief data officer Freddy Zwanzger told Cointelegraph that “institutions generally have long-term goals, so if anything, they would use recent price swings tactically — and most likely to buy into the market at lower prices.”
Social media seemed to reinforce this view. Zwanzger continued, “On Crypto Twitter, I also saw many retail newbies panicking trying to sell, and all OGs commenting on the bargains they’ve got in yet another volatile swing that has happened before and will happen again.” He added:
“Practically everyone I know in the industry did buy — or tried to buy — the dip, glad to expand their crypto holdings.”
“On-chain data does show that BTC moved from newer wallets to older wallets, which suggests that newcomers capitulated,” Bobby Ong, co-founder and chief operating officer of crypto data platform CoinGecko, told Cointelegraph, adding: “However, it is also important to note that during the dip, BTC on Coinbase was trading at a premium, while huge outflows were also seen coming out. This suggests that certain institutions were buying the dip, but it is likely to include some institutions capitulating.”
“On balance, our clients saw it as an opportunity to rebalance and add to positions at lower prices,” Bitwise chief investment officer Matt Hougan told Cointelegraph. Bitwise, which serves primarily financial advisors and other professional investors, had net inflows throughout the pullback.
Jeff Dorman, chief investment officer of Arca — a digital asset management firm — sought to clarify some of the ambiguity, noting that the term “institutional investors” is often misused, telling Cointelegraph:
“If you include macro and quant hedge funds as institutional investors, they were largely selling momentum, but the traditional institutional investors — pensions, endowments, family offices, etc. — were trying to allocate and were not shaken by the volatility.”
Did Musk See The Writing On The Wall?
Musk’s May 12 tweet was blamed by many media accounts for setting off the crypto plunge, but not everyone was ready to incriminate the Tesla CEO, who had written, “We are concerned about the rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.”
According to Moya, “this month’s cryptocurrency collapse stemmed from heightened leverage trading across Asia, panic selling from mostly new retail traders and active money managers who just rode momentum.” While Hougan largely agreed that the primary driver of the pullback “was liquidations of overleveraged retail investors,” he also cited rising regulatory risk and “China’s view towards crypto,” which seems to be deteriorating.
Regarding Musk specifically, Moya had a somewhat different take. “Initially, I thought this was a terrible flip flop by Musk and ultimately very bad news for Tesla and Bitcoin. After thinking it through, I believe that Musk saw the writing on the wall that the media was getting closer to calling out Bitcoin and its environmental impact.” He further added:
“Musk’s decision to suspend accepting Bitcoin as payment over environmental, social and corporate governance (ESG) concerns allowed him and other crypto supporters to control the story and timeline on transitioning miners into using renewable sources.”
Dorman agreed that Musk raised an ecological flag of sorts. “Elon Musk’s erratic tweets have brought ESG to center stage, and this will likely give pause to corporates/institutional capital,” he wrote in a blog post.
Will institutional investors, which are more sensitive to ESG issues these days generally, shy away from BTC now for environmental reasons? On May 21, it was reported that Greenpeace would no longer accept Bitcoin donations for environmental reasons, for example.
Furthermore, BTC mining does use prodigious amounts of electricity, after all — much more than the whole country of Argentina in a single year, according to a recent Cambridge University study. “The pressure is on for Bitcoin and other cryptos to embrace renewable energy,” continued Moya, adding:
“Bitcoin will eventually appease ESG investors, but for now, all they need to do is keep the big financial institutions happy [by saying] that they are working on it. Ethereum is already ahead of the game, so alternative investments will be available for ESG investors. Bitcoin can still succeed without getting ESG support in the short term.”
What about reports that institutional investors were dumping Bitcoin in favor of gold? Moya agreed that gold has become more attractive and may outperform BTC in the short term: “Bitcoin has dominated Wall Street as the best performing asset over all of 2020 and the first four months of this year. Institutions that were contemplating Bitcoin but failed to pull the trigger are completely riding the rally in gold prices.”
Was The Correction Overdue?
It’s important not to let May’s downslide obscure crypto’s overall performance. It has been an extraordinary year, generally speaking. “If we take a look at the bigger picture, Bitcoin has been climbing for the past seven months and was due for a correction,” said Ong.
“When you couple that with overleveraged traders, the 50% dip was essential in order to flush out leverage and ensure the bull market’s momentum can continue.” Meanwhile, Hougan noted: “Even after the pullback, Bitcoin is up more than 300% over the past year. The S&P 500 is lucky if it does that in a decade.”
What impact, if any, will the “reset” have on institutional adoption of cryptocurrencies and blockchain adoption moving forward — e.g., in 2021?
“Zero,” answered Dorman, adding: “Institutional money doesn’t come faster or slower based on price moves. Those trying to deploy will still deploy, and they are. The recent declines in GBTC and COIN may have been leading indicators that this new money was slowing already, but not because of the recent downward price moves.”
A Blue Ribbon For DeFi?
Overall, The pullback may have boosted interest in decentralized finance assets, Hougan told Cointelegraph. “This was a severe stress test for DeFi, and the industry passed with flying colors. That should raise confidence in the space.” Dorman agreed that DeFi passed “a major stress test,” writing in his blog that “it worked exactly as designed, handling all-time-high volumes and record liquidations without even a hiccup.”
Meanwhile, Gradwell told Cointelegraph: “There is clearly an opportunity for Ethereum to gain ground on Bitcoin if it can deliver on being greener and more useful than Bitcoin — for example, by moving to proof-of-stake and further innovating in DeFi and NFTs [nonfungible tokens].” Moya, for his part, said that “Bitcoin and Ethereum will remain the two favorite holdings for many institutions, though the upside potential appears greater for the latter.”
Is a boost for altcoins relative to BTC, then? “It ultimately boils down to different institutional interests,” said Ong. “While BTC continues to develop its narrative as a hedge against inflation and an appreciating store of value, ETH and DeFi, by extension, will attract stock-like investors.”
“Making A Generational Bet”
Can one speak of any lessons learned from the recent market shudder?
“For investors who have not experienced a crypto bear market in the past, this was a great test,” Hougan said. “If the pullback was too stressful, you have too much of your portfolio invested in crypto. You should downsize your position.”
“The latest crypto plunge shows that cryptocurrency volatility can be tolerated by both retail and institutional investors,” added Moya. Traders seemed like they were gung-ho to buy more Bitcoin even “if the plunge continued all the way towards the $20,000-to-$25,000 zone.”
“People will be more careful, especially those with over-leveraged positions,” predicted Ong. “For newcomers, it was an eye-opener as to the extreme level of volatility that you can only find in the crypto markets.”
All in all, the recent volatility shouldn’t deter institutional adoption of cryptocurrencies. “The institutional investors I speak with are looking at crypto as a 10-year position with significant upside potential,” Hougan told Cointelegraph. “They know it is a volatile asset. They’re making a generational bet and are not deterred by a few weeks of volatility.”
Novogratz’s Galaxy Provides Liquidity On Goldman Bitcoin Futures
Galaxy Digital Holdings Ltd. will serve as a liquidity provider on Bitcoin futures for Goldman Sachs Group Inc. as the securities firm re-enters the cryptocurrency markets.
The digital-asset firm started by billionaire investor Michael Novogratz, a former Goldman partner, will provide futures block liquidity on CME Group Inc. for the Bitcoin cash-settled products, according to a statement. Liquidity providers typically make markets by agreeing to buy and sell assets at certain prices.
Goldman is restarting its crypto trading desk to help clients such as hedge funds deal in publicly traded futures tied to Bitcoin. Earlier this week, Goldman said it plans to offer options and futures trading in Ether, the second largest cryptocurrency after Bitcoin.
“This is the first step in what will be a long journey together as they grow in crypto and as we expand in more traditional space,” Jason Urban, New York-based Galaxy’s global head of trading, said in an interview.
Various Galaxy businesses have been talking with a number of other traditional banks as well, Urban said.
“It could be a very large business,” Urban said. “As more institutions feel comfortable transacting in crypto, Galaxy will be a liquidity provider for them.”
Despite recent market volatility, with Bitcoin still down about 40% since an all-time-high in mid-April, Galaxy is seeing as many inbound calls, he said.
Total crypto derivatives volume spiked as investors reacted to higher volatility, according to researcher CryptoCompare. The derivatives market now represents 53.3% of the total crypto market in May, up from 50.2% in April,” CryptoCompare said.
“Part of what you know going in is that crypto is an extremely volatile asset,” Urban said. “Oil is an extremely volatile asset. People are aware that hey, this is a volatile asset, but in the long term this is the right asset.”
Galaxy shares are currently listed in Canada, though the company has said it is looking to list in the U.S. this year.
Bitcoin’s Money-Printing Machine Breaks Down As Futures Fall
One of the most reliable trades in cryptocurrencies has gone awry.
Bitcoin futures, which typically trade at a premium to the spot price, have collapsed along the curve amid a brutal selloff in the world’s largest cryptocurrency. That’s obliterated what’s known as the basis trade, in which a trader would buy Bitcoin in the spot market today and sell long-dated futures, locking in the discrepancy between the two prices.
It’s a painful watershed for one of the crypto market’s most ubiquitous plays. Hedge funds piled into the trade, which could previously reliably produce double-digit annual gains. Even better, the arbitrage was virtually risk-free, given that CME Group Inc. is the counterparty.
However, the trade existed because long-dated futures were more expensive than shorter-dated ones, given that Bitcoin is inherently scarce and theoretically should rise — a structure known as contango. The breakdown of that dynamic implies that built-in bullishness has disappeared gradually as prices declined.
“That’s the very simple explanation, that contango is typically indicative of bullishness in the market and so to the extent that market participants are pessimistic, it makes sense to me that it’s broken down,” Nic Carter, founding partner at Castle Island Ventures, said by phone. “It could mean that some capital has just been structurally withdrawn from the market.”
“We have been in backwardation for the last few days — this is due to the current market turmoil in the spot market,” said Wilfred Daye, chief executive officer of Enigma Securities, which works with institutional and corporate clients to provide crypto services and bespoke liquidity solutions.
“As levered futures/perps traders unwind their positions to meet margin calls, i.e. via auto-liquidation mechanisms on exchanges, the futures trade below the spot.” This could persist as long as sentiment remains negative and deleveraging trades continue, he said.
Contango and backwardation are names for curve structures that map traders’ guesses about what a given contract could be worth in the future. Contango means it’s upward sloping, while backwardation means downward.
Bitcoin on Tuesday, amid a decline that reached 12% at one point in the session, briefly wiping out its 2021 gains. The drawdown comes amid negative sentiment about its energy use, brought on largely by Tesla Inc.’s Elon Musk, as well as a clampdown from China. The coin is now trading not far from the levels it started the year — $29,000.
The basis trade’s disappearance is the latest sure-fire crypto wager to backfire. The Grayscale Bitcoin Trust (ticker GBTC) swelled to a shocking 40% premium to its underlying holdings in late December amid a rally in prices and relentless demand for crypto exposure. Institutional investors were able to capitalize on that by depositing Bitcoin with Grayscale in exchange for GBTC shares, then selling those shares at a markup after a six-month lockup period.
However, GBTC’s premium dissolved in late February, and the fund currently trades at an 11% discount to the Bitcoin it holds.
“The curve is just flat and these kinds of opportunities have gone away,” said Stephane Ouellette, chief executive and co-founder of FRNT Financial, whose firm says it offers the world’s only regulated BTC-basis product. “The futures curve is saying it has no idea where the market is going.”
CME Micro Bitcoin Futures Surpass 1M Contracts As Institutional Speculation Grows
The Chicago-based derivatives market launched its Micro Bitcoin futures product in early May, providing investors with smaller positioning opportunities.
Institutional exposure to cryptocurrencies via derivatives continued to grow in the second quarter, as CME Group’s newly launched Bitcoin (BTC) micro contract received considerable uptick in its first two months of trading.
Since launching on May 3, CME’s Micro Bitcoin futures contract has already surpassed 1 million contracts traded, the Chicago-based derivatives market announced earlier this week. CME executive Tim McCourt said the new product has been popular among institutions and day traders seeking to hedge their spot Bitcoin price risk.
Denominated at 0.1 BTC, the micro contract is one-tenth the size of one Bitcoin. By comparison, CME’s main Bitcoin futures contract unit is 5 BTC.
“We’ve seen more institutional volume than we anticipated, which shows that the timing was right for a smaller bitcoin contract,” said Brooks Dudley, the global head of digital assets at ED&F Man Capital Markets.
Institutions have reduced their long-term exposure to Bitcoin and other cryptocurrencies during the latest correction, with outflows totaling $79 million last week, according to CoinShares data. In the case of BTC, newly liquidated coins are being scooped up by long-term holders who remain convinced in the long-term prospects of their investment.
More activity in the derivatives market suggests traders are hedging their positions, speculating on the short-term directional movement of Bitcoin or both. Although derivatives trading has increased institutional exposure to Bitcoin, it has also become a source of stress for spot holders. As Cointelegraph reported, Friday’s $6 billion in Bitcoin and Ether (ETH) expiries created considerable friction in the market, with some traders expecting extreme volatility.
High volatility was reported in the latter half of the week, with the BTC price falling 13.6% peak-to-trough between June 24-26.
Turning bullish? Institutions Are Net Buyers Of Crypto For The First Time In 5 Weeks
CoinShares’ weekly report showed institutional managers are buying into crypto funds again after four weeks of profit taking.
Following their longest streak of selling since February 2018, institutional managers became net buyers of digital asset funds last week, offering cautious optimism that the worst of the market selloff has passed.
Inflows into digital asset funds devoted to Bitcoin (BTC), Ether (ETH) and others totaled $63 million in the week ended July 2, CoinShares said in its latest report. For the first time in nine weeks, inflows were registered across all individual digital assets with dedicated funds.
Funds devoted to Bitcoin saw $38.9 million in weekly inflows, bringing the year-to-date total to $4.186 billion. CoinShares revised the previous week’s total to reflect a small increase in net investments.
Ether funds registered $17.7 million in weekly inflows, bringing their year-to-date total to $960 million and snapping three consecutive weekly outflows.
Funds investing in Polkadot and XRP saw inflows of $2.1 million and $1.2 million, respectively.
While multi-asset funds saw positive weekly inflows, the total was much smaller than in previous weeks, a sign that investors were cycling back into Bitcoin.
Grayscale, the world’s largest digital asset manager, reported last week that its total assets under management reached $29.8 billion. Some analysts are concerned that crypto markets could experience headwinds in the coming weeks after Grayscale’s GBTC lock-up expires, allowing investors to sell the shares.
Institutional buyers played a significant role in crypto’s most recent bull market, and they too have been a source of volatility on the way down. As Cointelegraph reported in May, Grayscale’s Michael Sonnenshein, Amber Group’s Jeffrey Wang and Tyr Capital’s Edouard Hindi believe financial advisers could play a significant role in broadening institutional adoption moving forward.
40% Of Institutional Crypto Investors Intend To Buy A Lot More
More than 80% of institutional investors polled who have already invested in digital assets expect to increase their exposure.
A new survey suggests that hedge fund executives, wealth managers and institutional investors already holding crypto assets intend to increase their holdings.
The survey, conducted by London-based crypto fund Nickel Digital Asset Management, revealed that 82% of the 100 investors and wealth managers polled expect to increase their exposure to digital assets between now and 2023.
The research, conducted online in May and June and shared with Cointelegraph, surveyed 50 wealth managers and 50 institutional investors with prior exposure to crypto assets spanning the United States, the United Kingdom, France, Germany and the United Arab Emirates.
Four out of 10, or 40%, stated that they will “dramatically increase their holdings,” with just 7% stating that they intend to reduce their exposure, and only 1% planning to sell their entire holdings.
However, Nickel did state that in most cases, institutional investors with crypto holdings have very low levels of exposure, as “many have just been testing the market to see how it works.”
The survey revealed that the primary reason given for investing more in digital assets is the long-term capital growth prospects, according to 58% of the respondents. Even with the massive market slump, Bitcoin (BTC) has still made 18% so far this year, and Ether (ETH) is up a whopping 215% since Jan. 1.
Around 38% of those surveyed claimed that having some exposure to crypto assets gave them more confidence in the asset class, while 37% cited more leading corporates and fund managers investing in crypto assets as a reason to invest further.
Anatoly Crachilov, co-founder and CEO of Nickel Digital, commented that confidence in the asset class is increasing, and he expects the trend to continue, adding:
“Our analysis at the start of June this year revealed that 19 listed companies with a market cap of over $1 trillion had around $6.5 billion invested in Bitcoin, having originally spent $4.3 billion buying the cryptocurrency.”
As reported by Cointelegraph last month, a survey conducted by U.K. investment firm AJ Bell’s revealed that more people bought crypto assets than stock-related savings products over the past year.
A Mastercard survey in May revealed that four in 10 people plan to start using cryptocurrency for payments within the next year.
Bitcoin Investment Product Volumes Fall To 38% Of YTD Average
Institutional Bitcoin products have recorded outflows for nine of the past ten weeks, suggesting many investors remain bearish.
Institutions are continuing to sit on the sidelines of the Bitcoin markets, with BTC investment products volumes dropping to just 38% of its year-to year-to-date (YTD) average over the past week.
According to CoinShares’ July 19 Digital Asset Fund Flow Weekly report, Bitcoin investment products generated roughly $3.9 billion worth of daily trade from July 12 to July 16, down substantially from 2021’s average of nearly $10 billion.
However, the report’s authors do not conclude the decline in trade activity is cause for alarm, with CoinShares noting that Bitcoin has experienced “similar seasonal dips in volumes during the summer months in recent years.”
Institutional Bitcoin products also saw outflows of $10.4 million for the week, with investors now having net reduced their BTC exposure for nine of the past 10 weeks. Despite such, the volume of outflows witnessed during July have dwindled compared to recent months.
The largest outflow from Bitcoin products on record occurred between May 10 and May 14 — when institutional investors pulled $98 million from the markets.
While institutional investors have continued to reduce exposure to BTC, Ether (ETH) investment products posted a third consecutive week of inflows this past week.
Roughly $11.7 million flowed into Ether products, bringing YTD inflows up to $973 million for 2021 so far. However, Bitcoin products dominate the institutional digital asset products sector by YTD flows, receiving $4.1 billion from investors since the start of the year.
Cardano (ADA) products saw the second-largest inflows behind Ether, with investors increasing ADA exposure by $400,000. Ripple (XRP) and Polkadot (DOT)-tracking products also saw inflows of $300,000 each, followed by Stellar (XLM) with $200,000.
Despite recent bullishness, inflows to multi-asset products dwindled down to just $100,000 for the week.
Institutions Continue Offloading BTC Exposure Despite Price Rebound
Bitcoin funds are still in decline as institutional sentiment remains bearish.
Investments in institutional Bitcoin (BTC) products have continued to decline this past week.
In its “Digital Asset Fund Flows Weekly” report on Monday, CoinShares notes that institutional crypto products have experienced outflows for the third consecutive week, with $28 million exiting the sector during the week ending on Friday. As such, the week saw a 170% increase in outflows compared to the $10.4 million for the previous seven days.
The findings revealed that Bitcoin-based funds saw the largest outflows with $24 million, or 85% of combined outflows from crypto products. Monthly outflows for BTC are now at $49 million, although year-to-date flows remain positive at $4.1 billion. CoinShares stated:
“Last week’s outflows suggest negative sentiment still pervades the asset class despite more recent constructive comments from key industry players.”
Ether (ETH) products also saw outflows of $7.3 million over the week, while multi-asset funds bucked the trend with a net inflow totaling $3.1 million. The report added that multi-asset funds are the only class of crypto investment products that have experienced net inflows for every week of 2021 so far.
Despite the downturn, leading crypto asset manager Grayscale recorded an inflow of $2.5 million for the period. Its latest assets under management bulletin reports total AUM of $33.6 billion as of Tuesday.
CoinShares concluded that investment product turnover remains low at $1.7 billion for the week — comprising just 22% of May’s weekly average.
However, CoinShares’ data was recorded before Monday’s bullish market action that saw Bitcoin gain 15% in less than three hours.
Bitcoin Market Health Improves On Institutional Demand
“There seems to be a shift in the sentiment in the market compared to a few months back,” said hedge fund executive director Ulrik Lykke.
Bitcoin’s jump above a long-term moving average, posing as resistance around $45,000, has been broken for the first time in over two months.
The world’s largest cryptocurrency by market capitalization is currently changing hands for around $45,712 after peaking at $46,691 over the last 24 hours, CoinDesk data shows. The price has continued to drive higher and is now up 59% from the July 21 low of $29,500.
“There seems to be a shift in the sentiment in the market compared to a few months back,” Ulrik Lykke, executive director at crypto hedge fund ARK36 told CoinDesk via email. “We’ve recently seen some seemingly negative news coming out about Binance facing regulatory scrutiny that did not seem to influence the price a lot.”
Monday saw bitcoin break above the 200-day moving average, a long-term indicator of market health with price action being determined bearish below (red line) and bullish above. Tuesday’s daily candle marks the first time bitcoin has closed above the long-term indicator since May 20.
Daily spot volume for August is also at its highest in over two weeks given the recent flurry of trading activity backed by strong demand.
“There was buying pressure from Coinbase, and I think the demand was from institutional investors,” said Ki Young Ju, CEO of the Korea-based blockchain analytics firm CryptoQuant. He also noted that based on the “Kimchi Premium” and other on-chain indicators, retail investors were mostly absent from bitcoin’s recent run.
And while negative news has slowed, tensions over the crypto tax provision in the U.S. infrastructure bill appear to remain high.
“The bill result so far is not great, but it is going to be followed by months of united crypto lobbying,” Kyle Davies, co-founder of Three Arrows Capital, told CoinDesk on Tuesday. “The U.S. has seen prominent senior government officials fight on their behalf for crypto. I expect we’ll look back on this process as a great unifier that galvanized the industry.”
Other notable cryptos in the top 20 by market capitalization also rose over a 24-hour period with uniswap, ether and litecoin having clocked the highest gains.
Institutions Appear Bullish On Crypto Despite Record Bitcoin Outflows
Despite Bitcoin posting its sixth consecutive week of institutional outflows, sentiment around the future of the asset class appears on the rise.
At the start of 2021, the cryptocurrency industry was bursting with news of increased institutional investment, and this is still largely true. Despite reports suggesting increased outflows from institutional investors, net inflows are still very much positive. Additionally, though Bitcoin (BTC) appears to be the investment of choice for liquidations, institutional investment into Ethereum (ETH) has never been healthier.
From Wall Street hedge funds to major banks, large-scale investors are hopping aboard the crypto train. Bitcoin’s fall from its all-time high at $65,000 placed doubt in the minds of all cryptocurrency investors, though that could be changing as its price has since started to recover.
BTC accounts for over 44% of the total $2 trillion digital asset market capitalization, while Ethereum stands at around 18%. Back in May, the number of addresses holding more than 1,000 BTC fell to around 2,100 from the 2,500 mark seen in February, according to blockchain data analytics firm CoinMetrics. However, most indicators point to institutions increasing their overall holdings.
According to Nikita Ovchinnik, chief business development officer of the decentralized platform 1inch Network, “There is no doubt that institutional investors have a long-term bullish approach to crypto and Bitcoin specifically.” Long term, he also said that the key obstacle for institutions would lie in the technology itself.
“Due to its architecture, DLT works in a unique way that differs from the established IT and financial product infrastructure. It would certainly require some adjustments and updates in order to onboard more entities into crypto.” He added further:
“The number of institutional investors that have exposure to crypto has risen dramatically over the last year, and they didn’t come for short-term gains.”
International investment banks and financial services companies like Morgan Stanley, BlackRock, Goldman Sachs and JP Morgan have all set up Bitcoin-related services and funds over the last few months.
After reaching a peak of $40 billion in April, the Grayscale Bitcoin Trust, one of the largest institutional investors in the space, reported that its total assets under management fell to $20 billion in July before climbing back to nearly $41 billion amid the recent rally.
With concerns of a regulatory crackdown on digital asset exchanges and service providers, as well as China’s stance on Bitcoin trading and mining, there are enough reasons for traditional investors to be hesitant to enter the market. However, the recent pushback above the psychological mark of $40,000 could be a sign that the sentiment is recovering. The real question is, what will the institutions do next?
ETH And Flow
One of the biggest reasons investors have flocked to Bitcoin over the last two years has been the rising inflation rate of the U.S. dollar. Amid the ongoing COVID-19 crisis, the United States Federal Reserve has printed trillions in the name of stimulus checks, pushing concerned investors to look for other places to park their capital.
In mid-August, Bitcoin reported its sixth consecutive week of institutional outflows, with over $22 million in liquidations in a single week. This marks the longest period of outflows for the digital asset since 2018. Still, the total assets under management for digital asset investment products rose 10% in the same week, though this was primarily due to price appreciation.
On the other hand, multi-asset products appear much less uncertain about their direction, with institutional investors increasing their holdings by $7.5 million and attracting nearly $12 million through inflows over the last month. In contrast, over the same period, Bitcoin funds have experienced almost $68 million in outflows.
All of this points to institutions diversifying their holdings into other digital assets besides Bitcoin, with altcoins like Ethereum, Cardano (ADA) and Binance Coin (BNB) also seeing increased inflows. While BTC outflows may be higher than ever, institutional investments into digital assets are higher this year than ever before.
“The undeniable pattern is that institutional interest and participation in the field continues to rise,” said Jack Tao, CEO of a Singapore-based cryptocurrency exchange Phemex in a conversation with Cointelegraph, adding: “This is despite the periods of high volatility that crypto veterans are used to but may be undesirable to traditional investors.”
He also stated that the DeFi space was still in its early phases of adoption and that while some technologies and applications are already in place, we’re still only seeing the tip of the iceberg.
“Smart institutional investors can sense the change coming and wish to position themselves squarely as beneficiaries for what’s to come,” he said, adding: “The final use cases that blockchain will address hasn’t even been imagined yet.”
Investing in digital assets as an institution is very different from retail purchases. Despite most crypto-positive institutions already trading on forex markets, they face risks that are very different from traditional systems.
Finding differences in spot prices can become a costly ordeal, and since they end up trading with unknown counterparties, factors such as technological reliability and liquidity depth are far more critical than usual.
“There is still a long way to go,” Daniel Santos, CEO of Woonkly Labs’ automated market maker, defi.finance, told Cointelegraph: “[Institutions] don’t just need regulated products, but also easy-to-use products that are tailored specifically to their needs.” He added:
“Institutions are looking for products that enable them to invest in DeFi safely with peace of mind. I believe they’re taking a long-term approach, and they are bullish.”
“DeFi attracts a lot of attention,” said Yves Longchamp, head of research at SEBA Bank, a FINMA licensed digital assets bank. As Longchamp told Cointelegraph, institutional investors are focused on three main factors, including adding yield to their portfolios — a source of revenue that doesn’t exist in traditional finance.
Despite consistent Bitcoin outflows, institutions appear to be bullish as ever about the digital assets space. Recently, the global professional financial intermediary network, TP ICAP, announced that it would be launching a cryptocurrency trading platform along with industry giants Standard Chartered and Fidelity Investments.
Though it seems that big money is entering the industry with confidence, bringing their capital into the space, price appreciation could take a back seat as regulation becomes a more prominent concern for institutional investors.
Cryptocurrency adoption is rising faster than ever before with previously less proactive markets seeing increased movement, while the more actively participating regions grapple with broader changes and regulatory issues.
According to director of financial markets at digital asset exchange OKEx Lennix Lai, the main concerns are around Anti-Money Laundering (AML) and tax evasion, as he told Cointelegraph: “We see regulatory acceptance as a key obstacle to the market as a whole, yet market size and integrity are also challenges.”
According to Ovchinnik, since “the majority of protocols are completely permissionless, there is always a possibility of becoming a counterparty to some kind of criminal.”
However, he also added that these issues are being ironed out by development teams at the protocol level, taking pre-emptive measures to ensure their regulatory approval in the long run. This could become a significant factor for institutional investors entering the space, who are required to strictly adhere to regulations and the decisions of their governing political authorities.
According to chief operating officer at Huobi Trust Robert Whitaker, institutions are happy with Bitcoin and are starting to create market offerings around it. “Institutions are still aggregating a significant amount of BTC for their own needs and on the balance sheets,” he told Cointelegraph, adding: “This may easily drive the markets to sustain two to three trillion in valuation over the next year or so.”
With net positive inflows into digital assets, the possibilities are endless for blockchain technology. The opportunities in this space are seemingly unending, and even the smallest ones can be immensely profitable.
While Ocvhinnik believes institutions will focus more on cross-chain Layer-one solutions, Tao says there will be more focus on decentralizing traditional financial services and exploring more experimental aspects of the industry like NFTs and GameFi.
According to Rachid Ajaja, CEO of AllianceBlock, a decentralized capital market, decentralized finance, or DeFi, offerings are expanding into more traditional structured products like product wrapping and structured loans. “We are in a very exciting time,” he told Cointelegraph, adding: “The shift towards DeFi is happening right now.”
The biggest challenge will be finding a balance between the industry’s ethos of decentralization and achieving the level of compliance governments seek. For now, while the two forces seem fundamentally opposed to each other, a more robust solution will likely arise soon, as more lawmakers and government leaders educate themselves about cryptocurrencies and the technology behind them.
“Regulation in digital assets is a net positive,” said CEO of Bitstamp exchange Julian Sawyer in a conversation with Cointelegraph, adding: “By separating good actors from the bad, building more trust with investors and holding companies responsible for their actions through clearer guidelines, regulatory interest means credibility and growth for the whole industry.”
Citi Weighs Trading Bitcoin Futures And Notes As It Awaits Regulators’ Nod
Citigroup Inc. is considering whether to offer its biggest clients trading in Bitcoin futures as Wall Street continues its push into cryptocurrencies.
The banking giant is awaiting regulatory approval to begin trading CME Bitcoin futures, according to a person familiar with the matter, who asked not to be identified discussing internal deliberations.
“Our clients are increasingly interested in this space, and we are monitoring these developments,” Citigroup said in an emailed statement. “Given the many questions around regulatory frameworks, supervisory expectations and other factors, we are being very thoughtful about our approach. We are presently considering products such as futures for some of our institutional clients, as these operate under strong regulatory frameworks.”
Coindesk reported earlier Tuesday that Citigroup is awaiting regulatory approval to trade CME Bitcoin futures.
Citi will begin trading CME bitcoin futures first and then bitcoin exchange-traded notes, one of the sources said.
U.S. banking giant Citigroup (NYSE: C) is awaiting regulatory approval to begin trading bitcoin futures contracts on the Chicago Mercantile Exchange (CME), according to a source within the bank who asked to remain nameless.
The bank is said to be fielding a surge in client demand for cryptocurrency exposure as bitcoin again mounts a climb toward $50,000. Citi, which is still working through the necessary regulatory approvals, would join fellow megabank Goldman Sachs in offering bitcoin futures trading.
A second person familiar with cryptocurrency derivatives markets said Citi is actively recruiting people to join a crypto-focused team in London, adding:
“The team is likely to win approval to begin trading CME bitcoin futures first and then bitcoin exchange-traded notes (ETNs).”
“Given the many questions around regulatory frameworks, supervisory expectations, and other factors, we are being very thoughtful about our approach,” a Citigroup spokesperson told CoinDesk via email. “We are presently considering products such as futures for some of our institutional clients, as these operate under strong regulatory frameworks.”
Europe Prepares For First Bitcoin Futures Launch Amid US ETF Stalemate
There is no sign of an ETF launch approval in the U.S. as yet, with Europe soon to see a pioneering Bitcoin futures product.
Europe’s first-ever Bitcoin (BTC) futures will launch next month on the continent’s largest derivatives market, Eurex, an announcement confirms.
In a press release issued on Tuesday, digital asset-backed securities provider ETC Group said that its Bitcoin ETN Futures product will commence trading on Sept. 13.
Europe Highlights “Growing Institutional Demand”
ETC Group already operates the world’s first centrally cleared Bitcoin exchange-traded product (ETP), known as BTCetc Physical Bitcoin (BTCE).
Launched in June 2020 on Deutsche Boerse, there are now several crypto ETPs from the firm, three of which will also begin trading on the Wiener Boerse — Vienna’s stock exchange — in the future, Cointelegraph reported.
The moves come amid increased investor demand for institutional products tied to Bitcoin and altcoins, with Europe traditionally providing a friendlier environment than the United States, which is dragging its heels over approval of a Bitcoin exchange-traded fund (ETF).
Eurex will thus host the first European futures contract based on a crypto ETP starting next month.
“Given the growing institutional demand for secure exposure to Bitcoin, we are delighted to begin listing these Bitcoin ETN futures on our regulated trading and clearing infrastructure at Eurex,” Eurex executive board member Randolf Roth commented.
“This move will allow a greater number of market participants to trade and hedge Bitcoin, with this new future being treated in the same way as any other derivatives contract in terms of central clearing, netting, and risk management.”
Bitcoin traded at $49,700 at the time of writing, down around 1% on the day after briefly passing the $50,000 mark.
Mixed Institutional Sentiment Lingers
As Cointelegraph noted, institutional investor sentiment is slowly returning to favor crypto portfolio exposure.
That said, institutional instruments such as the Grayscale Bitcoin Trust (GBTC) have lagged behind surging spot prices, signaling that uptake is not yet back at bull market levels seen before Bitcoin’s all-time highs in April.
The GBTC premium — the additional cost of the Trust’s shares compared to BTC’s spot price — continues to hover in negative territory, equating to the shares trading at a discount.
Across The Seven Seas: Retail, Institutional Investors Keen On Bitcoin
The Bitcoin bull market led by institutional investors is pushing retail investors from countries like Russia, Vietnam and India toward cryptocurrencies.
Institutions have been at the forefront of the crypto bull run seen since Q4 2020, but now retail investors have been taking the center stage as well. Bitcoin (BTC) is getting more popular all around the world and it officially became a legal tender in El Salvador on Sept. 7, making it a landmark event for retail and sovereign adoption of the asset.
However, it turned out to be a chaotic event for the premier cryptocurrency token as the country celebrated “Bitcoin Day.” Soon after the day began, BTC’s price suffered a flash crash of over $8,000 to bottom out at $42,900. Even though this flash crash coincided with this major adoption event for the token, its significance for retail consumers and investors far outweighs the short-term price impact seen in the token’s price.
Interesting developments have followed in the aftermath as Fidelity Investment director Jurrien Timmer called this adoption a coming of age for the asset similar to gold in the sixties. Within the Latin American country, global food and beverage brands like McDonald’s, Starbucks and Pizza Hut have now started accepting Bitcoin as a payment option for their products.
Large-scale adoption by brands like these is bound to push retail interest in Bitcoin and cryptocurrencies as a whole to new heights, as now it is becoming more evident that there are real use cases for digital currencies.
The founder of Cardano and co-founder of Ethereum, Charles Hoskinson, even predicted that many more countries would eventually follow suit to El Salvador’s adoption.
Along with him, whistleblower Edward Snowden also lauded this move on Twitter, mentioning that the pressure is now on competing nations to acquire Bitcoin “even if only as a reserve asset.” Even if major global economies start considering the adoption of BTC as legal tender, it will give a huge boost to retail usage.
Bitcoin adoption by El Salvador has been a big part of the mainstream hype and narrative on cryptocurrencies at the end of the summer. Especially for retail investors, it often could become a case of FOMO (fear of missing out) which, due to the consistent gains of BTC throughout the year, often regret not buying the token a certain number of months ago.
This could lead to a huge influx of funds from retail traders in the aftermath.
Retail Investors Have An Eye On Crypto
A survey conducted by the Association of Forex Dealers (AFD), a regulatory organization for the foreign exchange market, attempted to gauge investor sentiment on digital currencies in Russia.
The results of the survey revealed that 77% of the 502 investors that participated preferred cryptocurrencies like Bitcoin, Ethereum (ETH) and Litecoin (LTC) to traditional financial assets like gold and forex.
Cointelegraph discussed more on this comparison with gold with Jaime Rogozinski, founder of WallStreetBets, a subreddit group made for retail investors. He said, “gold is synonymous with store of value in the U.S., which holds nearly three times more gold than the next three countries combined, but global investors have the opportunity to level the playing field with BTC’s emergence and boundless potential.”
Rogozinski also mentioned that all the other participants in the global economy, apart from the U.S., have an interest in the U.S. Dollar and gold losing the financial hegemony that assets currently hold.
Comparing the performance of gold and BTC, there is a vast difference in the results. In the short term, BTC has posted 62.76% gains year-to-date (YTD) and 351.62% yearly gains, while gold has posted 5.79% losses YTD and 7.91% losses yearly.
In addition to Russia, even India is witnessing millennials shifting their interest to cryptocurrency during the global COVID-19 pandemic. Nischal Shetty, CEO of WazirX, an Indian cryptocurrency exchange, told Cointelegraph that in the global perspective, institutional participation has paved the way for retail interest in cryptocurrencies:
“The pandemic had an equal or maybe greater contribution in accelerating crypto adoption, especially in countries like India. In such uncertain times, crypto has provided common people with new ways to earn online whether they are from urban or rural areas.”
According to data provided by WazirX, the exchange has witnessed a 2,648% increase in users signing up from Tier-II and Tier-III cities in India.
Users from these two segments of cities are responsible for 55% of the user signup growth in 2021, even outpacing Tier-I cities that showed a growth of 2,375%. Furthermore, 70% of the platform’s users are below the age of 35.
Perhaps echoing the surge in interest is the U.S.-based cryptocurrency exchange CrossTower announcing that they would be expanding their operations to India and “use the country as a hub to expand into other geographies.”
In a country of 1.36 billion people with more than 65% of them being under the age of 35, i.e., over 880 million, the potential for the market to grow further is humungous. Data from blockchain analytics provider Chainalysis showed that the amount of funds Indians have invested in cryptocurrencies had grown 600% from $900 million in April 2020, to $6.6 billion in May 2021.
A report by Chainalysis attempted to rank countries by their level of retail adoption using a metric known as the Global Crypto Adoption Index. Using this metric, the report found that Vietnam ranked number one and India ranked number two, with Pakistan, Ukraine and Kenya following closely behind.
For Vietnam, confirmation of the adoption in tandem with this metric is evident by taking a closer look at the trading volumes and number of users in the country.
According to the data provided to Cointelegraph by the Binance Research team, the total number of Binance users and trading volumes across all the cryptocurrency pairs offered in Vietnam have jumped by an average of 288.51%, and 235.66%, respectively from Jan to May 2021. To compare with this growth, Vietnam’s gold reserves only increased by 3.37% in the same period.
Rogonzinski further opined on how the institutional interest impacts retail investors, saying, “Institutional investors can afford to weather Bitcoin’s dips and have more of an eye toward long-term gains, but I have faith that each bull run succeeds in bringing more retail investors into the market and hopefully teaching them to HODL.”
Retail Brings Numbers, Institutions Bring Movements
An industry analysis report by cryptocurrency exchange OKEx in collaboration with on-chain data provider Catallact revealed that despite the growth of the small BTC addresses (holding less than 10 BTC), retail investors have had a relatively smaller contribution to the overall transaction pool in Q1 2021.
Data provided to Cointelegraph by Binance Research outlines that when looking solely in terms of the BTC trading volume, the recovery in BTC’s price and interest levels could be due to the combination of retail and institutional investors. Between June 2021 and August 2021, Binance witnessed a 3.29% and 1.36% increase in the number of retail and institutional investors respectively.
In line with this number, the total number of BTC traded by retail and institutional investors on the exchange grew 4.61% and 3.99% respectively. In the same period, the overall BTC trading volume grew by 1.98%.
The chart represents how an increase or decrease in the retail and institutional investors trading BTC on the platform is aligned with the movement of the overall BTC volume. The representative from Binance’s research team further said:
“This shift in investor mindset from traditional assets like gold or forex to crypto is definitely not confined to developing countries. In fact, it is also prevalent in more developed countries where the sentiment of favoring crypto investments is seen more as a move to gain exposure to the emerging asset class, as opposed to just a store of value or hedge against inflation.”
While discussing with Cointelegraph, co-founder of Huobi Global cryptocurrency exchange Du Jun pointed toward the Bitcoin balance on all exchanges as a metric to gauge the institutional involvement in the market.
According to the data from Glassnode, the amount of Bitcoin held in exchange wallets bottomed out at 2.48 million this year, adding further: “Bitcoin balances on Coinbase dropped to about 700,000, the lowest level recorded throughout the year. Over the past month, mainstream exchanges have seen net Bitcoin outflows.”
As most institutions use Coinbase to invest, Jun inferred that institutions have purchased more BTC over the past month. He also mentioned that large banking institutions like Rothschild and Morgan Stanley have increased their exposure to crypto assets through their holdings in the Grayscale Bitcoin Trust (GBTC).
Institutions investing in Bitcoin or getting into digital currencies as a payment mechanism are still at their nascent stages. Thus, the untapped potential for its proliferation of cryptocurrencies into retail investors is served well by being spearheaded by institutional investors, as it gives retail investors a sense of security, along with the upside potential that the hype of crypto markets captures.
Institutional Investors Increase Their Crypto Holdings For 5Th Straight Week
Despite the recent selloff in the crypto markets, institutional managers have been quietly turning bullish over the past month.
Cryptocurrency assets held by institutional managers rose for a fifth consecutive week, a sign that market participants had once again flipped bullish on Bitcoin (BTC) and the leading altcoins.
Investment flows into crypto products totaled $42 million in the week ending on Sept. 19, with Bitcoin funds seeing inflows of $15 million, according to digital asset manager CoinShares. That’s only the third time in 16 weeks that BTC investment products saw positive inflows.
All major assets registered a weekly increase, with investors buying up $6.6 million worth of Ether (ETH) products and $3.7 million worth of multi-asset funds. Investors also allocated $4.8 million towards Solana (SOL), disregarding a denial-of-service disruption earlier this week as a result of network congestion.
In terms of actual products, 21Shares registered the largest weekly inflows at $28 million. The physically-backed crypto exchange-traded product provider now has $1.87 billion in assets under management. Grayscale remains the single largest crypto asset manager, with $43.177 billion in total assets.
Fund managers have been buying up crypto in lockstep with a broad market recovery that began in late July. Crypto markets peaked above $2.2 trillion last week after plunging to around half that amount earlier in mid-July. However, by Monday, all major crypto assets had printed heavy losses as Chinese Evergrande news walloped risk sentiment.
Institutional investors have become important players in the cryptocurrency market, which is a testament to the growing mainstream acceptance of digital assets.
Some of crypto’s biggest asset managers told Cointelegraph earlier this year that investing in digital assets no longer carries the same level of career risk as before, which means more financial advisers and wealth managers are likely to enter the market.
This was corroborated by a recent poll by London-based crypto fund Nickel Digital Asset Management, which found that most hedge fund executives have already purchased cryptocurrency.
Institutional Investors Bought The Dip As China FUD Broke
While institutional Bitcoin products have experienced outflows for 13 of the past 17 weeks, the sector has now seen three straight weeks of inflows.
Institutional investors were buying the dip on the back of China’s latest FUD, with digital asset investment products generating $95 million worth of inflows last week.
According to CoinShares’ Monday “Digital Asset Fund Flows Weekly” report, a surge in dip buying helped drive a sixth consecutive week of inflows for institutional crypto investment products broadly.
The $95 million worth of inflows between Sept. 20 and Friday marks a 126% weekly inflows increase. Bitcoin (BTC) and Ether (ETH) investment products led the pack with $50.2 million and $28.9 million worth of inflows, respectively.
While BTC investment products have seen outflows in 13 of the past 17 weeks, positive sentiment toward the asset rose during September as inflows were recorded for the past three weeks. Inflows to Bitcoin products also increased by 234% week-over-week.
Institutional appetites for altcoins appear to remain strong, with products tracking Solana (SOL), Cardano (ADA) and Polkadot’s DOT posting inflows of $3.9 million, $2.6 million and $2.4 million, respectively. Multi-asset funds also saw inflows of $6.4 million this past week.
The Great Wall Of FUD
On Friday, the People’s Bank of China (PBoC) published a memo announcing a ban on all crypto transactions that triggered an 8% dip in the price of Bitcoin along with a wider pullback across the crypto market.
The PBoC’s updated measures — which were initially published on Sept. 3 before it was picked up by western media outlets last week — outlined that financial institutions and payment firms are barred from providing any services related to crypto transactions.
While FUD from Chinese regulators has historically impacted crypto markets, it has also served as a catalyst for surging prices or bull runs in the subsequent months following the announcements.
In September 2017, China’s government banned crypto exchanges from offering services to users in the country while also barring citizens from participating in initial coin offerings. Following the double ban, the price of BTC made the historic climb from the $4,000 range to a then all-time high price of around $20,000.
The Long Game: Institutional Interest In Crypto Is Just Getting Started
A growing list of mainstream financial entities have continued to increase their exposure to crypto over the last year or so.
The old adage “The crypto market is not for the faint-hearted” was put on full display recently when the total market capitalization of the industry dipped to a relative low of $1.75 trillion on Sept. 20, only to make a strong comeback.
Despite all of these fluctuations, however, demand from institutional investors remains strong, with reports suggesting that big-money players continued to recently “buy the dip,” especially on the heels of China’s most recent blanket ban that saw bears take control of the market, albeit briefly.
To further elaborate on the matter, a recent CoinShares report revealed that over the last week of September, digital asset investment products generated $95 million worth of inflows for institutional crypto investment products — with Bitcoin (BTC) and Ether (ETH) leading the way with $50.2 million and $28.9 million worth of inflows, respectively.
In fact, on average, the last 30-day period has seen inflows to Bitcoin products surge by a whopping 234% week-over-week.
It also bears mentioning that since April, United States investment bank Morgan Stanley has doubled its total number of Grayscale Bitcoin Trust (GBTC) shares owned, something that came to light when the financial behemoth filed a report with the U.S. Securities and Exchange Commission (SEC) on Sept. 27.
Lastly, investment management giant Ark Invest — helmed by CEO and crypto bull Cathie Wood — has also been on a GBTC buying frenzy, with the firm having acquired more than 450,000 GBTC shares via two different separate purchases recently, bringing its total haul to a sizable 8.3 million GBTC shares.
Institutional Demand Grows
To get a better idea as to how active institutional players have been in terms of their crypto exposure, Cointelegraph reached out to Luuk Strijers, chief commercial officer for crypto options exchange Deribit. He highlighted that large banks like Morgan Stanley, Citi and Goldman Sachs are starting to offer their clients a wide array of digital assets, adding:
“We don’t see them becoming active on offshore derivatives platforms yet. We do, however, see the tier-two firms in size, asset managers and hedge funds becoming more and more active either actively investing/trading or alternatively hedging their VC investments.”
To support his claims, he pointed out that around 20% of Deribit’s options volume is nowadays being transacted as an over-the-counter block, with this number previously hovering around the 5%–10% range. “Due to the size of these transactions, which clearly imply that institutional parties are involved, these transactions are better executed in one block versus multiple transactions on-screen,” he explained.
Lastly, Stijers pointed out that traditional financial institutions prefer trading futures and options over perpetual offerings, which are usually seen as short-term exposure products due to the unpredictability of their funding. “Deribit has larger futures open interest versus many of our peers since around 80% of our volumes is institutional driven,” he said.
Playing The Long Game
Elena Sinelnikova, co-founder and CEO of Ethereum layer-two rollup platform Metis, told Cointelegraph that more often than not, retail investors ignore periods of consolidation, directing their attention to the crypto industry only when the market is pumping. On the other hand, institutional investors know that the best time to stack up is when the market drifts lower and/or stands still, suggesting a more long-term outlook on their part. She said:
“We’ve been through enough market cycles to know that the type of pullback we’ve seen over the past few months often comes right before a big uptrend. While no one can predict the future (in crypto or otherwise), institutions are using this quiet period to load their bags, in anticipation of another big leg up.”
Additionally, Sinelnikova pointed out that investors need to remember that different stages of the market can produce dramatically different results. “Keep an eye on Bitcoin dominance data to see whether it’s BTC or altcoins (or both) that drive the next move up for the market,” she stated.
A somewhat similar outlook is shared by Douglas Horn, chief architect of the scalability-focused blockchain network Telos, who told Coitnelgraph that institutional investors can be likened to supertankers — i.e., it takes them a lot of time and energy to get them moving, but once they do, it’s just as hard to stop them again. He said:
“Now that they have made the decision to get into crypto, they are not going to be dissuaded by some temporary volatility. If anything, they are going to be less flappable about accumulating crypto during downturns. By the time these investors bought their first Bitcoin, they had surely spent years assessing and strategizing their entry and objectives. They operate very differently than typical crypto investors and traders.”
Horn stated that as things stand, the groundwork has already been laid by firms like MicroStrategy for others to follow and that a deluge of newer institutional investors are close to wrapping up their own long due diligence processes assessing the long-term viability of investing in the digital asset market.
Not Everyone Agrees
Philip Gunwhy, chief marketing officer for NFT ecosystem Blockasset, told Cointelegraph that while Bitcoin’s embrace by institutional investors has been progressive over the past many months, some are still cautious, especially as the regulatory climate surrounding this nascent industry has continued to heat up. In his view:
“The potential buyers of Bitcoin are not a coordinated effort by these institutional investors, and as such, one cannot tell with certainty the buying patterns of these investors, except when announced. While Morgan Stanley recently doubled down on its Bitcoin investments, many institutional investors are choosing the option of venture capital funding, injecting capital in companies offering Bitcoin-related services.”
Despite Gunwhy’s assertions, Wes Levitt, head of strategy for decentralized video streaming platform Theta, told Cointelegraph that institutional capital is still pouring into the blockchain space, as evidenced by the amount of crypto venture capitalist (VC) funding in the first half of 2021, which exceeded $17 billion. He said:
“It could be that interest has waned somewhat in direct exposure to BTC/ETH with the May crash no doubt spooking many traditional investors, but according to reports, institutional flows are still net positive for the month of September. As always, the reports of crypto’s death are greatly exaggerated.”
To get an idea of where increasing institutional crypto adoption may be heading, Cointelegraph spoke with Joshua Frank, co-founder and CEO of TheTIE, a crypto and blockchain analytics provider. In his view, the demand his firm is witnessing from traditional firms has been staggering.
“There are dozens, if not hundreds, of billion-dollar prop trading firms, hedge funds and other asset managers that have recently made their first crypto trades,” Frank said.
He further stated that while there have been some high-profile announcements of funds investing in crypto, there are many more of these developments taking place behind the scenes, of which the public has no knowledge. Frank said that usually, such operations start simple — i.e., a fund does a cash-and-carry BTC trade as a proof-of-concept using partner capital — and grow over time, adding:
“We are finding these funds falling further and further down the rabbit hole. We have at least 5–10 clients which are the top 50–100 largest hedge funds that are actively hiring crypto teams. That’s all I can say publicly, but these funds are our clients so we are seeing it in real-time.”
Lastly, according to a recent survey, a growing list of traditional financial entities are increasingly looking to move into the realm of digital asset trading/investments. Per the report, some 62% of global institutional investors with no current exposure to cryptocurrencies stated that they are looking to get into the crypto market within the next 12 months or so.
The survey considered the views of 50 wealth managers and 50 institutional investors based out of different countries including across the United States, the United Kingdom, France, Germany and the United Arab Emirates. “There is no doubt that the crypto assets market is becoming more mainstream in the institutional and wealth management sectors,” the report stated.
As the crypto industry continues to grow from strength to strength — both from an infrastructure as well as a regulatory standpoint — it will be interesting to see how the above-mentioned trend of increased institutional adoption plays out.
Institutional Bulls Back Bitcoin After Weeks Of Altcoin Accumulation
Institutional crypto appetites have shifted away from altcoins back to Bitcoin, with BTC investment products leading the inflows for digital asset products for the second week in a row.
Institutional investors are pivoting back to digital gold with Bitcoin (BTC) investment products posting a third consecutive week of inflows.
According to CoinShares’ latest “Digital Asset Fund Flows Weekly” report, BTC investment products generated $68.7 million worth of inflows between Sept. 27 and Friday, representing a 36% increase in exposure week-over-week.
While products tracking BTC have now dominated inflows to digital asset products for two weeks in a row, the bullish turn comes fresh off a record streak of outflows that persisted for eight consecutive weeks until early September.
Total inflows for digital investment products were $90 million for the week, marking the seventh consecutive week of inflows as institutional investors continue to increase exposure to digital assets.
Institutional investors also snapped up a significant amount of Ether (ETH) investment products, with inflows totaling $20.2 million. BTC and ETH products gained roughly 7.4% and 3.2% for the week, respectively.
There was also a mixed appetite for altcoins last week. Products tracking Cardano (ADA) and Solana (SOL) posting inflows of $1.1 million and $700,000, respectively, while Polkadot’s DOT and Binance Coin (BNB) fund shed $800,000 each. Multi-asset funds also saw minimal inflows of $1.9 million.
Institutional demand for Solana appears to have bottomed out, with inflows to products tracking SOL crashing by 98% since posting highs of $38.9 million five weeks.
Despite the markets recovering from July’s violent pull-back, CoinShares highlighted that last week’s trade volume of $2.4 billion remains low compared to the $8.4 billion worth of institutional crypto products traded weekly during the height of 2021’s bull cycle in mid-May.
According to CoinShares’ estimates, institutional asset managers currently represent combined assets under management (AUM) worth $57.1 billion combined — a weekly increase of 8.5%.
Grayscale continues to dominate the sector, representing $41.1 billion or 71% of the sector’s total AUM. CoinShares XBT and Purpose funds rank in second and third with $2.2 billion and $2.1 billion worth of AUM, respectively.
Crypto Transactions Surge 706% In Asia As Institutional Adoption Grows — Chainalysis
When it comes to cryptocurrency transactions, the region of Central and Southern Asia and Oceania, or CSAO, is growing rapidly.
Emerging markets across Central and Southern Asia have registered a dramatic uptick in cryptocurrency transactions, highlighting a diverse range of motivations among locals for gaining exposure to digital assets such as Bitcoin (BTC) and Ether (ETH).
New research from blockchain analytics firm Chainalysis finds that crypto transactions surged 706% in Central and Southern Asia and Oceania — a broad region that includes countries such as India, Pakistan and Vietnam — between July 2020 and June 2021. In dollar terms, the value of the transactions amounted to $572.5 billion, or 14% of the global transaction value.
Institutional and large payments accounted for the highest percentage of transactions, offering further evidence of smart money adoption of cryptocurrency. This trend was most pronounced in India, where large institutional-sized transfers above $10 million represented 42% of transactions. For Vietnam and Pakistan, that figure was 29% and 28%, respectively.
The study is the second installment of a series of regional reports by Chainalysis on cryptocurrency transactions. The first report, which was released last week, found that the region of Central, Northern and Western Europe has become the world’s largest crypto economy, with over $1 trillion in transactions over the same 12-month period. Institutional transactions in Europe amounted to $46.3 billion in June 2021, up from $1.4 billion in July 2020.
While Europe dominates in crypto transactions, Asian countries are leading in terms of overall adoption, as measured by on-chain value received, on-chain retail transactions and peer-to-peer transaction volumes. Vietnam, India and Pakistan ranked first through third, respectively, in Chainalysis’ 2021 Global Crypto Adoption Index.
As Cointelegraph previously reported, emerging markets across Asia, Africa and South America are pivoting toward Bitcoin and other digital assets to combat hyperinflation, capital controls and strict foreign exchange policies.
Peer-to-peer crypto exchanges have taken root in Africa, with countries such as Kenya and Nigeria increasingly relying on platforms like LocalBitcoins and Paxful. Latin America, meanwhile, is now home to two crypto exchange unicorns and the first country to formally adopt Bitcoin as legal tender, El Salvador.
Institutions Buying Bitcoin Rather Than Gold As Inflation Cranks Up: JPMorgan
According to JPMorgan, this week’s rally has been driven by institutional investors hedging against inflation with Bitcoin.
Bitcoin (BTC) has led a 35% rally this week by soaring far above the $50,000 resistance level and restoring a $1-trillion market capitalization to the asset.
According to a note shared by JPMorgan with clients on Thursday, the recent increase in price for BTC was predominantly attributed to institutional investors looking for a hedge to inflation.
“The re-emergence of inflation concerns among investors has renewed interest in the usage of Bitcoin as an inflation hedge,” the analysts said, arguing there has been a shift in perception as to the merits of BTC in relation to gold.
“Institutional investors appear to be returning to Bitcoin perhaps seeing it as a better inflation hedge than gold.”
Institutions aren’t alone there. Shark Tank star Kevin O’Leary stated earlier this week that crypto now accounts for a larger allocation in his portfolio than gold does.
The momentum toward Bitcoin is in contrast to a JPMorgan report in May when analysts noted big investors at the time were switching out of Bitcoin and into traditional gold.
The implicit endorsement of Bitcoin by major banks and regulators is going to accelerate the collapse of #Gold and the rise of #Bitcoin as the preferred safe-haven store of value for both institutional and retail investors.https://t.co/7os1ojenHs
— Michael Saylor⚡️ (@michael_saylor) October 7, 2021
JPMorgan provided two other factors it believes are behind the current rally.
“The recent assurances by US policy makers that there is no intention to follow China’s steps towards banning the usage or mining of cryptocurrencies,” the analysts noted, as well as:
“The recent rise of the Lightning Network and 2nd layer payments solutions helped by El Salvador’s Bitcoin adoption.”
Unlike other analysts this week, JPMorgan did not cite speculation around the imminent approval of a Bitcoin futures exchange-traded fund as a significant driver of the price.
BTC is trading at $53,884.76, according to CoinMarketCap, at the time of writing.
Despite some divisions of JPMorgan expressing a growing interest in crypto assets and blockchain initiatives, CEO Jamie Dimon stated in an interview on Monday that he remains a skeptic of BTC and even compared it to “a little bit of fool’s gold.”
Who Bought $1.6B In Bitcoin Wednesday, And Why?
It’s an eerie coincidence that a trade of this size happened on exchanges with ties to Chinese customers during a week beset by that country’s capital market woes.
Like a toddler in a car seat on a long drive, last week the cryptocurrency market persistently asked the gnawing and annoying question, “Why?”
Specifically, why did someone make a massive purchase of $1.6 billion worth of bitcoin on Wednesday in a couple of minutes?
While many see this huge buy as a signal of bullishness, there may be more complex answers when one zooms out and looks at the overall picture, one that involves capital markets beyond the relatively small world of crypto.
Some of the clues about why – and who – may be found in what, where, when and how this enormous bitcoin trade happened.
As CoinDesk’s Muyao Shen reported Wednesday, a buyer or a group of buyers entered an order on a centralized exchange to buy $1.6 billion worth of bitcoin. That’s not nothing – to put it in perspective, that’s roughly 4.5% of the average daily volume in the bitcoin spot market over the past two months.
That much supply hitting the market in under five minutes (13:11 to 13:16 UTC Wednesday) is a lot to jam into any one exchange (or three). It almost immediately sent bitcoin prices skyrocketing 5% to roughly $55,500.
A buyer with a long-term perspective would be more careful if the goal was to get in at the best possible price to mitigate the risk of that rascal known as slippage.
Slippage is more than what happens when a bartender fills your glass to the brim and you walk it over to your table while George Thorogood is blaring in the background. It’s the difference between the execution price and the midpoint between the bid and ask price that got you to take on the trade in the first place.
With a big buy, filling every offer eventually pushes the transaction price (and thus the average execution price) higher and higher. But do it in dribs and drabs and you give new sellers time to place orders that can be filled slowly but at a potentially lower price than if it were to be done all at once.
Here’s an example, albeit on a bigger scale, of how one firm handled a major buy of bitcoin: Last year, when MicroStrategy purchased $450 million in bitcoin, the company did so in smaller clips from Coinbase over the course of five months, not five minutes.
While the price eventually moved up over the course of those several months, each trade didn’t cause it to shoot up with the same kind of ferocity seen this past Wednesday, thus keeping CEO Michael Saylor’s costs from, well, slipping away from him as he bought.
That wasn’t the case this past week with whoever plunked down the equivalent of $1.6 billion for bitcoin. It seems Wednesday’s big buyer was in a big hurry to get the trade done.
Trying to pin down the exchange that took on this trade offers some hints about the buyer’s motivation.
The price of bitcoin on Coinbase relative to other exchanges rose sharply as the trade was underway, leading some to speculate that the regulated U.S. exchange was the platform where the transaction happened. However, a little more digging into the data places the trade in Asia.
Three exchanges saw particularly large volumes in their perpetual futures contracts, according to Ki Young Ju, CEO of data provider CryptoQuant. Those three – Binance, Huobi and ByBit – while not technically based in China, have long had ties to the country, where yet another crackdown on crypto was recently announced.
“Whales bought up $BTC in the perpetual futures markets yesterday mostly at @binance, @HuobiGlobal and @Bybit_Official. Basis ratio says it was futures-driven, and they punted long positions as open interest skyrocketed at that time. These guys know something,” Ki tweeted Thursday.
Ki hypothesized that one possible explanation could be traders taking on huge positions ahead of a rumored approval by the U.S. Securities and Exchange Commission of a futures-based bitcoin exchange-traded fund (ETF). The buzz hit the market after the regulator’s chairman, Gary Gensler, merely reiterated his previously stated preference for a futures-based ETF should one ever get launched.
“If this move was the ETF front-running from US whales, they are likely to use non-US exchanges to avoid blame for insider trading IMO,” Ki tweeted, shooting down the idea that the trade came from an order on Coinbase. “Spot trading volume dominance for Coinbase is increasing lately, but not that high compared to early this year.”
Again, that doesn’t explain the trader’s willingness to accept slippage. After all, front-running a regulatory action a full week after speculation began by piling all in with one big order wouldn’t be prudent or rational.
That doesn’t mean irrational exuberance doesn’t exist in crypto markets; for many participants it’s a feature, not a bug. But that’s not something usually characteristic of an entity with the resources to take on a billion-dollar trade.
Rather, the fact these three perpetual futures exchanges originated in China (though no longer based there) may be more significant than just their relative liquidity.
It’s an eerie coincidence a trade of this magnitude happened on exchanges with ties to Chinese customers in the middle of a week beset by capital market woes in that country.
Two days before the transaction took place, Fantasia, a real estate developer based in China, missed a bond payment of $206 million. That led to the company getting downgraded by ratings agency Fitch.
The situation isn’t just limited to one company as Standard & Poor’s downgraded fellow Chinese developer Sinic. Of course, the two pale in comparison to Evergrande, the overleveraged real estate behemoth that has been teetering on default. Shares of Evergrande were halted from trading Monday as well.
Another large real estate developer, Chinese Estates Holdings, decided to go private Thursday after the market slammed its stock by more than 40%. Chinese Estate Holdings is a major investor in Evergrande.
This is a roundabout way of saying there’s some serious contagion going on in the Chinese real estate market. That’s not good for the country’s economy given that roughly one-third of its economic activity is related to the real estate sector, whereas it’s only one-sixth or so for the U.S.
But wait, there’s more!
While the purchase is denominated in the press as $1.6 billion, it wasn’t actually $1.6 billion in greenbacks paid for bitcoin.
For one, if CryptoQuant’s Ki is correct, this was first done in the perpetual futures market, not the cash market. That means actual bitcoin may not have gone to the initial buyer. Nonetheless, it will have an effect on the cash market because the two move in tandem.
Also, dollars themselves were most likely not the currency used but instead the transaction appears to have been largely done using the stablecoin USDT, issued by Tether, which was an on-ramp for many in China to trade on exchanges like Binance or Huobi.
“Most trading volume was from BTC/USDT,” Ki told CoinDesk regarding Wednesday’s trade, “which means buyers already had USDT coins.”
A look at trading volumes on data site CryptoCompare.com shows that at the time the trade occurred, the pair of BTC/USDT outpaced BTC/USD (bitcoin for the U.S. dollar) by roughly 2-to-1.
That means someone with significant USDT holdings – even if a fraction of the actual transaction since leverage could have been involved – converted their stablecoin holding to bitcoin exposure, if not the actual coin itself.
Another Odd Coincidence?
Remember a minute ago when we talked about Chinese corporate debt? Here’s something interesting: On Thursday, BloombergBusinessWeek released its cover story, “Anyone Seen Tether’s Billions?” Toward the end, author Zeke Faux writes, curiously:
“After I returned to the U.S., I obtained a document showing a detailed account of Tether Holdings’ reserves. It said they include billions of dollars of short-term loans to large Chinese companies – something money-market funds avoid. And that was before one of the country’s largest property developers, China Evergrande Group, started to collapse.”
He Goes On To Say:
“Tether has denied holding any Evergrande debt, but [Stuart] Hoegner, Tether’s lawyer, declined to say whether Tether had other Chinese commercial paper. He said the vast majority of its commercial paper has high grades from credit ratings firms.”
What is on Tether’s books remains hidden to the outside world. But if the mystery buyer saw the same document as Bloomberg’s Faux, or other compelling evidence that Tether is indeed exposed to China’s credit market, then they would have a strong motivation to unload USDT. Even $1.6 billion in one fell swoop.
Again, that’s just conjecture. Unless and until we know who did it, we may never know the trader’s motivation.
Nor will we know if it was the right move, especially if the contagion spreads to crypto.
Institutional Crypto Products Eye Record AUM As Investors Pile Into Bitcoin
Institutional investors piled $225 million into Bitcoin products, while Ether products saw outflows of $13.6 million this past week.
Institutional investors are continuing to pile into Bitcoin (BTC) despite prices pushing up to a five-month high.
According to CoinShares’ Tuesday “Digital Asset Fund Flows Weekly” report, more than $226 million in capital flowed to institutional Bitcoin products this past week. Bitcoin products dominated inflows for the third consecutive week, posting a week-over-week increase of 227%.
The heavy inflows coincided with the price of BTC gaining 12.5% for the week, with BTC sitting at around $54,000 on Friday.
CoinShares attributes the positive shift in sentiment toward Bitcoin to recent statements from United States Securities and Exchange Commission Chairman Gary Gensler suggesting the long-awaited approval of the U.S.’ first Bitcoin exchange-traded fund (ETF) may be just around the corner.
The surging activity surrounding Bitcoin has seen the combined assets under management (AUM) of institutional crypto products push up to $66.7 billion last week — with CoinShares estimating the total is just 5% shy of the sector’s record AUM from May.
Products tracking altcoins have posted mixed performances for the week, with Solana (SOL) and Cardano (ADA) products generating inflows of $12.5 million and $3 million, respectively. However, funds offering exposure to Ether (ETH), Polkadot’s DOT and XRP suffered outflows of $13.6 million, $2.1 million and $600,000, respectively.
Crypto investment products have now posted inflows for eight weeks in a row.
Many onlookers are attributing BTC’s recent bullish momentum to expectations that the SEC will soon approve a futures-based Bitcoin ETF.
While the SEC has previously shot down every application it has received for physically backed Bitcoin ETFs, the SEC is currently deliberating four applications for exchange-traded funds based on the Chicago Mercantile Exchange’s (CME) regulated futures contracts.
With CME’s futures markets offering a product that is already insured and overseen by U.S. regulators, pundits such as senior ETF analyst for Bloomberg Eric Balchunas believe that Bitcoin futures ETFs are “likely on schedule” to receive a regulatory green light this month.
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