Institutional Investors' Rising Interest in Bitcoin Reflected in CME Futures
Summary:
Institutional investors' interest in Bitcoin has been highlighted by the recent surpassing of Binance's BTC futures markets by the Chicago Mercantile Exchange (CME) Bitcoin futures in size. The CME's Bitcoin futures open interest currently stands at $4.35 billion, a high since Bitcoin's peak of $69,000 in November 2021. This surge in interest is possibly tied to the expected approval of a spot Bitcoin ETF, and the spike in CME Bitcoin futures' annualized premium signals an increase in optimism among buyers. Traders should keep an eye on BTC option markets data for clearer insight into institutional investment trends.
Institutional investors' interest in Bitcoin (BTC) has dramatically increased, evidenced by the Chicago Mercantile Exchange (CME) Bitcoin futures surpassing Binance's BTC futures markets in size on Nov. 10. These investors show significant expectation that Bitcoin might surpass a $40,000 benchmark soon. Currently, CME's open interest in Bitcoin futures is $4.35 billion, its highest position since Bitcoin reached a record $69,000 in November 2021. This spike demonstrates increased interest but doesn’t guarantee further upturns in price.
An exciting 125% rise in CME's BTC futures open interest from $1.93 billion in mid-October is visibly linked to speculation surrounding the potential approval of a spot Bitcoin ETF. Yet, no direct connection has been established between this trend and the decisions of market makers or issuers. In a social media post on Nov. 26, Cryptocurrency analyst JJcycles suggested this theory.
Large asset managers can avoid futures contracts' expensive costs using different strategies like CME Bitcoin options which require fewer funds but provide similar leveraged long exposure. They can also leverage regulated ETF and exchange-traded notes (ETN) trading in regions including Canada, Brazil, and Europe. It may seem overly optimistic to predict that these management giants would chance using derivative contracts on a decision that hinges on the U.S. Securities and Exchange Commission (SEC), whose verdict is not expected until mid-January. Nonetheless, a noticeable increase in CME Bitcoin futures open interest provides concrete proof of institutional investors' growing involvement in the crypto industry.
CME's Bitcoin futures indicated a high optimism level on Nov. 28 when there was a noticeable spike in contracts' annualized premium (basis rate). In neutral markets, the monthly future contracts usually trade with a 5% to 10% basis rate, considering longer settlement times- a common occurrence called contango. On Nov. 28, CME Bitcoin futures' annualized premium leaped from 15% to 34%, eventually settling at 23% by day's end, signaling a significant deal of optimism among buyers. The current metric sits at 14%, implying the tapering of the unusual movement.
It's key to mention that during the 8-hour period on Nov. 28, Bitcoin's price jumped from $37,100 to $38,200. It's difficult to ascertain whether the surge stemmed from the spot market or future contracts because of the swift arbitrage observed between them. Monitoring BTC option markets data can provide more clarity about institutional interests rather than focusing on intraday price movements.
If traders forecast a drop in Bitcoin's price, a delta skew metric above 7% is likely, while times of high anticipation usually result in a -7% skew. In the past month, the 30-day BTC option’s 25% delta skew has consistently stayed below -7%, settling near -10% on Nov. 28. This consistency hints at a bullish attitude among institutional investors using CME Bitcoin futures and raises questions about whales amassing assets in anticipation of a potential ETF approval. Essentially, derivative metrics do not suggest rampant short-term optimism.
If whales and market makers were completely convinced about the SEC's approval according to Bloomberg’s ETF analysts' expectations, the BTC options delta skew would probably be significantly lesser. Be that as it may, with the ongoing trading of Bitcoin's price near $38,000, it seems likely that the hopeful buzz about pending ETF approval will continue to push towards resistance levels.
The information provided here is for general informational purposes and shouldn’t be seen as legal or investment advice. The views, thoughts, and opinions expressed herein belong solely to the author and do not necessarily represent Cointelegraph's views and opinions.
Published At
11/29/2023 9:15:00 PM
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