Bitcoin Derivatives Gaining Record Traction from Institutional Investors

Not much has changed in the bitcoin market. Yes, we go up towards $12,000. Yes, we then go down to $11,000. But it is nothing new. August has been all about — BTC price surging and falling but remaining in the range.

The ‘real’ volume in the spot market meanwhile has increased to above $2 billion but it is still not strong. Also, the volume has been on a constant decline since last July when the price went from $9,000 to $12,000. However, in the futures market, activity is picking up.

On CME, the volume has been keeping above $500 million for the most part and this week it made two attempts to reach $1 billion, as per data source Skew. Meanwhile on the Bakkt, as we reported this week, the platform hit a new record and stayed above $110 million in daily volume.

However, open interest is not painting a good picture as on CME it dropped to $600 million, down from the peak of $948 million on August 17th. Open positions on Bakkt were at $27 million on August 3rd but have now declined to $9.8 million. But the drop gained traction in the second half of the month.

According to the latest post by the CME, the number of unique accounts on the platform that traded bitcoin futures since launch now exceeds 5,400. New participants are also entering the market that has the number of LOIH (Large Open Interest Holders) continuing to grow. For the week of August 18th, a record number of 94 holders was established.

The number of LOIH has been rising sharply since Q4 2019, and given that an LOIH is a holder for at least 25 contracts (in CME 1 contract equals 5 BTC), institutional interest has been growing, noted Denis Vinokourov of London-based prime broker Bequant.

Additionally, average daily open interest has been steadily increasing since March and has been actually exceeding average daily volume for the last four months.

On August 17th, OI reached a record at 77,030 BTC and averaged 13,672 contracts for the month, which is a 40% increase from July.

Meanwhile, in the options market, interest in CME’s bitcoin options which were launched in January, the interest sparked after the halving in May.

While pre-halving, average daily volume was less than 30 contracts, it jumped about 9 times to 256 contracts post-halving.

On July 28th, the daily options volume recorded was $60 million which remained below $10 million for the most part of this month, as per Skew. Unlike CME, Bakkt’s bitcoin options, which were launched in the month prior, have been seeing no traction whatsoever — zer0.

Open interest meanwhile, is spread out over a wide strike range, between $1,000 and $100,000 per bitcoin. Currently, the OI on CME bitcoin options is around $200 million.

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