CME Says Volume Surge Shows Strong Institutional Interest Before Bitcoin Halving

A surge in bitcoin derivatives suggests institutional investors are getting bitcoin exposure ahead of the halving, the Chicago exchange says.

AccessTimeIconMay 11, 2020 at 10:47 a.m. UTC
Updated Sep 14, 2021 at 8:39 a.m. UTC

Chicago Mercantile Exchange (CME) says record trading activity for its bitcoin derivatives reflects a strong institutional interest in the imminent halving event.

In a note sent out late on Sunday, the derivatives exchange said a strong "ramp up" in volumes over the past week showed institutional investors were getting exposure to bitcoin, most likely in preparation ahead of the supply-cutting event.

Primarily used by institutional and professional investors, CME said 844 unique accounts have begun trading bitcoin derivatives since the start of 2020 – more than double the number of new market entrants compared to the same period last year.

Average daily volume (ADV) for its bitcoin futures came in at 8,456 contracts year-to-date, more than 43% above the same time period in 2019, the firm added. Total volumes for bitcoin options contracts, which only launched in mid-January, are up to 2,250 contracts, with a record 216 contracts exchanged on May 6.

Open interest – contracts that haven't settled – in both futures and options came in at just under 9,800 (around $423 million-worth of bitcoin) and 555 contracts (roughly $4.8 million) respectively on May 7. Average daily open interest is up 33 percent from where it was this time last year, CME's note said.

"With bitcoin halving set to take place on this week, CME Bitcoin futures and options have seen a ramp-up in trading activity ahead of this major event," the exchange said. "Large open interest holders in Bitcoin futures reached a record of 62 during the week of April 14, reflecting strong institutional interest."

Ross Middleton, co-founder and CFO of decentralized exchange DeversiFI, said: "Soaring CME bitcoin futures volumes and [open interest are] evidence of the growing Institutional interest in bitcoin both ahead of the halving and as a broader macro hedge."

It comes as no surprise CME's volume for bitcoin futures is up because it was "one of the easiest way for legacy firms to gain exposure to Bitcoin," Middleton added.

Brian Wong, co-founder, and chief product officer at futures exchange BTSE, said funds who would not otherwise have invested in bitcoin may have had a "flagpole" moment when celebrity hedge fund manager Paul Tudor Jones expressed his intention to allocate a part of his portfolio into the asset class.

Of course, CME remains a cash-settled derivatives platform, meaning that while institutional investors are gaining exposure to bitcoin, they aren't physically holding it. Institutions are excited by the halving but are still only "trading paper," said Mati Greenspan, founder of crypto analytics site Quantum Economics. As such, they're limiting their exposure to the asset class.

At the time of writing, bitcoin's halving event – which will take block rewards down from 12.5 BTC to 6.25 BTC – was expected to take place in just under 10 hours. While the previous two halvings have caused big volatility spikes followed by extended rallies, there is some uncertainty on how bitcoin's price will be affected this time around.

In a blog post published Friday, CME highlighted this will be the first halving to feature a robust and liquid derivatives market. Market participants can now create far more sophisticated market positions and miners can now lock-in and hedge their positions ahead of the halving, the firm said. Thus "the selling pressure from miners is less likely to act as a drag on bitcoin prices going forward," the exchange said.


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