The Chicago Mercantile Exchange (CME) has long been a cryptocurrency home for traditional financial investors, and that’s unlikely to change even if a Bitcoin spot ETF is approved.
CME’s activities have expanded significantly over the past 12 months. CME now has more Bitcoin (BTC) futures trading volume than Binance, the world’s largest cryptocurrency exchange. CME’s open Bitcoin interest currently accounts for 24.7% of the entire market, making it the largest Bitcoin futures trading venue in the world
While some of this activity is almost certainly related to expectations of approval of spot ETFs, the launch of one or more ETFs will not result in a reduction in futures market activity. In fact, when the SEC finally delivers information from BlackRock and others, futures trading may expand rather than contract. et al. Green light.
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There is no doubt that spot ETFs will bring a lot of institutional funds to the industry. However, it does not change the fundamentals of Bitcoin liquidity. As we all know, the supply of Bitcoin is capped at 21 million. This means that the futures market is the only place where actual trading can occur.
Goldman Sachs, Morgan Stanley, JPMorgan Chase and others have successfully used CME Group to trade cryptocurrency instruments for years, and they have been using futures to do so. Futures remain the instrument of choice as liquidity is a major issue in the spot market. These large institutional investors can buy Bitcoin at any time, but liquidity remains the main drawback rather than the lack of spot ETFs.
Institutional investors using CME Group are also very sophisticated. Therefore, any fund manager holding a position in BlackRock’s spot ETF will want to hedge that position using futures on the Chicago Mercantile Exchange (CME). Therefore, we can expect CME activity to grow almost in tandem with the growth of spot ETFs.
As we know, futures are also a speculative instrument, and perhaps no market is more speculative than cryptocurrency. With the approval of spot ETFs, the asset class gains more legitimacy and credibility, and we will see more investors interested in all aspects of digital asset trading.
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Risk-taking day traders who may have stuck to the Forex market in the past may start venturing into Bitcoin and other cryptocurrency instruments. They will exercise this interest through CME. In fact, I suspect that next year we will see increasing interest in perpetual swaps and other types of derivatives in the industry.
Cryptocurrency futures also benefit from clearer and more consistent regulation, which is another major factor. While the Commodity Futures Trading Commission (CFTC) regulates futures, no one has quite decided who will oversee the cryptocurrency spot market from a regulatory perspective, and this remains an issue. Applications for these Bitcoin spot ETFs are currently on the SEC’s desk, but as has become abundantly clear, Chairman Gary Gensler loves ambiguity.
Clear regulation is making cryptocurrency futures a clear success, while spot markets are hampered by regulatory opacity. So while ETF approval is just a matter of time at this stage, we still don’t know how long it will take. While we wait, the futures market remains an attractive trading venue for institutional investors.
Lucas Keeley is the Chief Investment Officer of Yield App, where he oversees portfolio allocation and leads the expansion of diversified investment product offerings. He previously served as chief investment officer at Diginex Asset Management and as a senior trader and managing director at Credit Suisse in Hong Kong, where he managed QIS and structured derivatives trading. He also served as head of exotic derivatives at UBS Australia.
This article is for general information purposes only and is not intended to be, and should not be construed as, legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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