Bitcoin prices may have fallen, but CME BTC futures up 61% vs Q3 2018


With all the hoopla surrounding the stumbling Bakkt futures exchange, we tend to forget that the Chicago Mercantile Exchange (CME) has already established itself as a “go to” place for Bitcoin futures contracts. The CME is also a wily competitor, having knocked out the Chicago Board of Exchange (CBoE) from the arena last March. The CME group has now reported that, despite Bitcoin prices falling some 25%, their futures “Daily Open Interest” (DOI) for the digital asset at the end of last quarter stood at 4,629 contracts, a 61% increase over the 2,873 figure posted at the end of 2018’s third quarter.

The CME attributed the growth to more interest from the institutional sector. It arrived at this conclusion due to the increase in large deposit accounts. Coindesk reported that:

Entities holding more than 25 bitcoin, used as a proxy for large investors, rose to 47, from 45 in the second quarter and 34 in the third quarter of 2018.

The CME added that:

Institutional flow remained strong, with 454 new accounts added, compared with 231 added in the third quarter of 2018.

The success of the CME versus the closure of the CBoE from the BTC futures space is a textbook example of how varying competitive tactics can win in the marketplace. The CBoE was first to market in late 2017, but a few months later the CME offered a similar but different product. It is expensive to trade on these exchanges, but cheaper if you already use it for other sectors. The CBoE placed its BTC futures with VIX contracts in a separate exchange, thereby limiting accessibility. The CME placed its product along side its equities market, ensuring a larger target set of customers. The rest is history.

The CME also noted that it has no plans to offer a “physically settled” contract like the one offered by Bakkt, but it did recently announce plans to offer options to enhance its already successful BTC derivative product line. Tim McCourt, the CME Group global head of equity index and alternative investment products, told Cointelegraph:

Based on increasing client demand and robust growth in our Bitcoin futures markets, we believe the launch of options will provide our clients with additional flexibility to trade and hedge their bitcoin price risk.

McCourt also noted that he expects new volumes to come from an assortment of clients, ranging from existing institutional investors to crypto exchanges or even from miners that seek price stability in a very volatile market. Options will only make their service more attractive, according to McCourt:

While futures give you a one-for-one exposure […] an option gives you varying strike-price levels and can give you either downside protection or upside exposure at a fraction of the underlying price.

McCourt was also quite happy to relate that Bitcoin futures volume set a record back in the month of May, where “34,000 futures contracts were traded, worth $1.3 billion and equivalent to 170,000 BTC”. As for large institutional accounts, this statistic peaked at another record figure of “56 large open interest holders reported in July”. Of note, as well, is that nearly 50% of the CME’s trading volume comes from outside of the U.S. A full 26% originates from the Asia Pacific region, while 21% is sourced from EMEA.

With the CBoE out of the picture, will the CME with “cash settled” contracts win out over the Bakkt “physically settled” offering? The inside scoop provided by The Block is that Bakkt is gearing up to offer options, as well, and before the projected Q1 date that the CME has announced. The battle is enjoined. Expect competition to be fierce.

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