CME Outpaces Binance in Bitcoin Futures Trading, Set to Expand Even With Spot ETF Approval
Summary:
The Chicago Mercantile Exchange (CME) now sees more Bitcoin (BTC) futures trading than Binance, making it the top Bitcoin futures trading venue worldwide. This trend is expected to continue, and even grow, following the approval of a Bitcoin spot Exchange Traded Fund (ETF). Institutional investors like Goldman Sachs and Morgan Stanley prefer futures due to liquidity issues in the spot market. Additionally, greater acceptance of cryptocurrencies and the approval of spot ETFs could attract more traders into digital asset trading.
Historically, conventional finance investors have gravitated to the Chicago Mercantile Exchange (CME) to engage with cryptocurrencies, a trend that may continue even with the approval of a Bitcoin spot Exchange Traded Fund (ETF). Over the past year, activity on the CME has notably gathered pace. Currently, Bitcoin (BTC) futures trading is more prevalent on CME than on Binance, the world's largest cryptocurrency exchange. The largest proportion of all open BTC interests worldwide, at 24.7%, is currently happening on CME. Even the expectation of a spot ETF approval doesn't seem to deter this activity and in contrast, may fuel the fire in the futures market, which is expected to grow once BlackRock and similar entities receive approval from the SEC.
Investing in a spot ETF will without a doubt introduce a significant influx of institutional money into this sector. However, it won't alter the fundamental aspects of Bitcoin liquidity or its capped supply limitations - only 21 million Bitcoins exist. Hence, future markets remain the most viable platforms for actual trading activities. Goldman Sachs, Morgan Stanley, JP Morgan, and others have been actively trading cryptocurrency instruments through futures on CME due to liquidity concerns, not because of the absence of a spot ETF.
Institutional investors on CME are generally highly experienced, so it is natural for a fund manager investing in BlackRock's spot ETF to hedge their position using futures on CME. Therefore, the CME's growth trajectory is expected to align with that of spot ETFs.
Cryptocurrency is no stranger to speculative trading, and futures are used for this purpose. Greater acceptance of cryptocurrencies and the approval of a spot ETF could pique investors' interest in digital asset trading. Day traders who previously confined themselves to the forex market might be attracted to Bitcoin and other cryptocurrencies, exploring these through the CME platform. Increased interest in perpetual swaps and other derivative instruments in 2023 is also anticipated.
One of the advantages of crypto futures is the clear and consistent regulatory framework it operates under, compared to the yet-to-be-decided regulatory responsibility over the crypto spot market. The Securities and Exchange Commission (SEC) is presently reviewing Bitcoin spot ETF applications, but the uncertain stance of Chairman Gary Gensler has brought regulatory obstacles to the spot market. Although the approval of an ETF is expected soon, it is unclear when. Meanwhile, the futures market continues to captivate institutional investors.
Lucas Kiely, as the Yield App's CIO, is responsible for portfolio allocation and product range diversification. Prior to this, he headed Diginex Asset Management as its CIO. His rich experience includes being a senior trader and managing director at Credit Suisse in Hong Kong, leading QIS and Structured Derivatives trading operations. He also helmed exotic derivatives at UBS, Australia. This article is merely informational and should not be perceived as professional investment or legal advise.
Published At
11/28/2023 9:25:22 PM
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