The Chicago Mercantile Exchange (CME) launched Bitcoin (BTC) futures contracts in December 2017. Around the same time, BTC reached an all-time high of $19,800, but by the end of 2018, the price had fallen to $3,100. Cryptocurrency investors quickly learned that CME derivatives contracts allowed them to make bullish bets using leverage, but also enabled them to bet on price, a practice known as shorting.

Historically, the U.S. Securities and Exchange Commission (SEC) has rejected proposals for bitcoin exchange-traded funds (ETFs) due to concerns about manipulation by unregulated exchanges. The growing importance of the CME Bitcoin futures market may address this issue, and recently, Hashdex even called for the creation of a Bitcoin ETF that relies on physical trading of Bitcoin within the CME market.

Professional traders often use BTC derivatives to hedge their risk. For example, one could sell a futures contract while using borrowed stablecoins to buy bitcoin using margin. Other examples include selling long-term bitcoin futures contracts while buying perpetual contracts may help benefit from long-term price differences.

CME Overtakes Bybit to Become Second Largest Bitcoin Futures Market

Since 2020, CME has played a key role in the bitcoin futures market, with an impressive $5.45 billion in open interest as of October 2021. Over the next few years, however, the gap widened further as the CME bitcoin futures market trailed exchanges by reaching $1.2 billion in January 2023. Such as Binance, OKX, Bybit and Bitget.

Most recently, the 12.8 percent drop in bitcoin prices between Aug. 16 and Aug. 17 resulted in a $2.4 billion drop in total futures open interest. Notably, CME Group was the only exchange whose open interest was not affected. CME thus became the second-largest trading platform on Aug. 17, holding $2.24 billion in BTC open interest, according to Coinglass.

Bitcoin futures open interest ranking. Source: Coinglass

It’s worth noting that CME Group exclusively offers monthly contracts, as opposed to perpetual contracts or inverse swaps, which are the most traded products on cryptocurrency exchanges. Additionally, CME contracts are always cash-settled, while cryptocurrency exchanges offer contracts based on stablecoins and BTC. These differences lead to differences in open interest between CME and cryptocurrency exchanges, but there is more to the story.

CME Group Futures Are Different From Crypto Exchanges

Aside from differences in contract settlement and the lack of perpetual contracts, CME’s bitcoin futures trading differs significantly from most cryptocurrency exchanges in terms of volume and pricing dynamics. The CME’s average daily volume of $1.85 billion was below its $2.24 billion in open interest.

By comparison, Binance’s BTC futures trade nearly $10 billion in daily volume, three times its open interest. A similar pattern was observed on the OKX exchange, whose BTC futures reached about $4 billion in daily volume, outpacing its $1.4 billion in open interest. This difference is partly attributable to CME’s higher margin requirements and the free trading environment for market makers on cryptocurrency exchanges. Additionally, trading hours on the CME are limited, suspended from 4:00 p.m. to 5:00 p.m. Central Time, and fully closed on Saturdays.

However, multiple factors contribute to the price difference compared to other exchanges. These include changes in leverage requirements between long and short positions, and potential differences in bitcoin index price calculations between different providers. Finally, it is important to consider the solvency risk associated with margin deposits (collateral) prior to settlement of BTC futures contracts.

Related: When Is It Too Late To Invest In Bitcoin?

December 2023 BTC futures CME (blue) vs. Binance (orange) vs. Bybit (teal). Source: TradingView

Notably, CME Bitcoin futures are trading about $280 more than Binance’s Bitcoin futures at the December 2023 expiry. Ultimately, the day-to-day pricing of bitcoin futures contracts depends on several variables. While CME Group’s trading volumes are trending upwards, its pricing mechanism may not perfectly reflect Bitcoin’s price movements on cryptocurrency exchanges.

It fails to provide enhanced price guidance for BTC investors given the intricate interplay of variables affecting its pricing and trading dynamics.