According to Coinglass data, the open interest (OI) of Bitcoin (BTC) futures on the Chicago Mercantile Exchange (CME) has risen to $4.41 billion, the highest value since Bitcoin reached an all-time high in November 2021, indicating heightened market interest.
Source:
Coinglass
CME’s Bitcoin futures OI surged by 125% from mid-October’s $1.93 billion, surpassing Binance to become the largest Bitcoin futures trading platform, likely driven by expectations of approved Bitcoin spot ETF. However, it is important to note that this growth is not directly related to market makers or issuers’ actions.
Institutional investors have various choices to avoid high costs associated with futures contracts. For example, they can opt for CME Bitcoin options, which offer similar leveraged long exposure with lower capital requirements. Additionally, compliant ETFs and Exchange-Traded Notes (ETNs) trading in regions like Canada, Brazil, and Europe provide alternative options.
Cointelegraph analyst Marcel Pechman believes that betting on the decisions of the Securities and Exchange Commission (SEC), expected to be announced by mid-January next year, by some of the world’s largest asset management firms seems somewhat naive. Nevertheless, the growth of CME Bitcoin futures open interest is solid evidence of institutional investors turning their attention to cryptocurrencies.
CME Bitcoin futures signal market optimism
Pechman highlights that while CME Bitcoin futures activity continues to steadily increase, the most noteworthy development is the surge in the contract’s annualized premium (basis rate). In neutral markets, monthly futures contracts usually trade with a 5% to 10% basis rate to account for longer settlement times. This situation, known as contango, is not unique to cryptocurrency derivatives.
On November 28, the annualized premium of CME Bitcoin futures soared from 15% to 34%, stabilizing at 23% by the end of the day. A basis rate exceeding 20% indicates considerable market optimism, showing buyers are willing to pay a high premium to establish leveraged long positions. The current indicator is at 14%, suggesting the factors causing this abnormal fluctuation are no longer a major influencing factor.
Notably, within 8 hours on November 28, the price of Bitcoin surged from $37,100 to $38,200. Determining whether this rally was driven by the spot market or futures contracts is challenging, as arbitrage between the two occurs within milliseconds. Pechman suggests traders should not fixate on intraday price movements but focus on BTC options market data to confirm institutional investors’ increasing interest.
If traders anticipate a Bitcoin price decline, an expected Delta skew indicator exceeding 7% is typical, while greedy periods usually result in a -7% skew. Over the past month, the Bitcoin 30-day options 25% delta skew has remained below the -7% threshold, approaching -10% on November 28.
Deribit exchange’s 30-day Bitcoin options skew, Source: Laevitas
Pechman explains that this data supports the bullish sentiment of institutional investors using CME Bitcoin futures and raises doubts about the argument that whales are accumulating assets before a potential spot ETF approval. Essentially, these derivative indicators do not indicate short-term excessive optimism.
Pechman suggests that if whales and market makers are truly 90% confident of SEC approval, in line with Bloomberg ETF analyst expectations, the delta skew of Bitcoin options may be lower. Nonetheless, with Bitcoin trading near $38,000, as long as hopes for a spot ETF approval remain the driving force, bulls are likely to continue challenging resistance levels.