Institutions’ Long Position on Bitcoin Doubles, BTC Futures Surpasses the Spot Volume by 18 Times

It’s been a month now that Bitcoin's price has been boring, hovering around $8,000. As such, volatility has dropped below 2%.

However, volatility might make a comeback soon as the difference between the upper and lower band in the Trading Envelope indicator gets to its narrowest since mid-September. A similar narrowing was seen last month before BTC took a fall of more than 12% in late Sept.

Equity strategist Matt Laley believes, “As it becomes more and more obvious that the Libra thing is not going to take off (…) the volatility will pick up again.”

This is where the “money is to be made in crypto”

This low volatility has the trading volume on cryptocurrency exchanges drying up. A recent report of CryptoCompare revealed that in September, top-grade exchanges registered a decline of 31.6% in trading volume.

However, the Bitcoin futures market is flourishing, so much so that the amount of derivatives traded globally at $5 to $10 billion a day exceeds Bitcoin spot volume by 10 to 18 times.

Asian-based exchanges BitMEX and Binance are leading the futures’ race while offering more than 100x leverage on BTC and other crypto contracts.

“That’s where the money is to be made in crypto,” said Sid Shekhar, co-founder of TokenAnalyst. “It’s the biggest casino ever.”

The main use case is still ‘Speculation’

As the cryptocurrency futures market sees heightened activity, the number of players is also rising.

“The main use case around this product so far has been around speculation,” said Emmanuel Goh, chief executive of Skew and a former derivatives trader at JPMorgan Chase told Bloomberg.

The latest entry in the futures market has been of Binance that has been registering record volume and recently launched 125x leverage. And this leverage is what attracts traders because it means, “traders don’t have to tie up as much capital as you would trading spot,” making trading futures cheaper, said Binance CEO, Changpeng Zhao.

Most recently, just after 18 months of acquisition, Circle spun off Poloniex so that it would be free to offer derivatives.

“To offer this in the U.S. is very cumbersome, it’s very, very heavily regulated, it’s also limited to Bitcoin,” Circle CEO Jeremy Allaire told Bloomberg. “The most popular products that people trade, you can’t even offer them in the U.S.”

Institutions, “Flopkkt” & BitMEX

However, the same is not the case for derivatives platform that caters to institutions. Cboe stopped offering Bitcoin futures earlier this year while Bakkt received a very cold response.

Flopkkt pic.twitter.com/K1c1RjPzCW

— Alex Krüger (@krugermacro) October 22, 2019

But institutions have begun to feel bullish on Bitcoin, it seems, as the long position by institution accounts at CME is yet again on the rise.

Long positions held by institutional accounts at the CME have been rising again in October.

For reference, institutions include pension funds, endowments, insurance companies, mutual funds & portfolio/investment managers whose clients are predominantly institutional. pic.twitter.com/96N2XZwo9e

— skew (@skewdotcom) October 20, 2019

BitMEX, however, remains the king, holding the largest market share of the crypto derivatives trading and making at least $700k in fees per day, in the BTC derivatives market despite being investigated by the US CFTC.