Bitcoin Futures Volume on CME Explodes Reaching ATH

Colin Muller

Trading of Bitcoin futures on the Chicago Mercantile Exchange (CME) has reached its highest volume ever during the past few days of rallies across the cryptoasset markets. The CME, along with the Chicago Board Options Exchange (CBOE), are currently the only regulated Bitcoin futures markets operating in the US.

cmeVol.png(source: Cmegroup.com)

Data from the CME’s website show that 18,338 contracts were bought on 19 Feb. alone. Each contract is comprised of five bitcoin - so on average, about $360 million worth of volume was traded on the CME in one day.

cmeVol2.png(source: TradingView.com)

The CBOE Bitcoin market - which trades one-bitcoin contracts - did not however see a similar, unprecedented explosion in trading. This divergence is consistent with 2018’s trend, as CME Bitcoin trading has continuously risen versus CBOE’s falling Bitcoin volume. CME Bitcoin trading was outpacing CBOE trading by mid-2018 by about six times, according to the Financial Times.

cboeVol.png(source: TradingView.com)

Of course, speaking about the regulated Bitcoin futures markets segues into the less-regulated ones, principally BitMEX. And in this regard, BitMEX’s most popular Bitcoin futures trading product has seen healthy volume - but not record-breaking.

mexVol.png(source: TradingView.com)

Perhaps this volume on an institutionally regulated exchange signals more institutional buying of Bitcoin.

More Coming

CryptoGlobe recently reported that the New York-regulated Kraken exchange will soon offer Bitcoin futures, making it the first regulated exchange to offer both spot and derivative products under one roof.

And of course, the cryptoasset industry continues to wait for the Bakkt launch, a New York Stock Exchange-connect Bitcoin futures product with daily physical settlement. Bakkt has been repeatedly delayed since its original launch date late in 2018 - but are continuing to prepare for the launch with new hires, as CryptoGlobe reported in January.

How Bakkt Can Bring the Crypto Space an Institutional Investor Influx

Cryptocurrency enthusiasts have for years been waiting for institutional investors to enter the space. While the introduction of bitcoin futures contracts on regulated exchanges in late 2017 didn’t gain a lot of traction, but Bakkt may.

Bakkt is a long-awaited bitcoin futures exchange and on-boarding platform from the Intercontinental Exchange (ICE) - the parent company of the New York Stock Exchange – and it’s set to launch this year. Bakkt itself has remained tight-lipped over the precise launch date after delaying its launch last year, with ICE CEO Jeff Sprecher in February simply saying “later this year.”

It’s possible that this quarter may see the launch or at least more news about when the exchange is finally coming. At the end of March, Bakkt CEO Kelly Loeffler explained:

While we’re not yet able to provide a launch date, we’re making solid progress in bringing the first physical delivery price discovery contracts for bitcoin to the U.S.

Bakkt’s launch could be a major milestone for the cryptoasset industry. A venture backed by Microsoft and Starbucks, its institutional pedigree alone will switch many cautious investors on. Specifically, the firm is set to help consumers pay for goods and services with cryptocurrencies, with Starbucks being the flagship retailer in its arsenal.

Bakkt’s Bitcoin futures contracts will be the first physically-settled derivatives on a regulated trading platform. This means investors will receive the contract’s underlying asset, bitcoin, when it expires.

Currently the Chicago Mercantile Exchange (CME) offers cash-settled bitcoin futures contracts, meaning investors get the equivalent of BTC’s value in fiat when the contracts expire. This is seen by some as a major development in the cryptocurrency space, as it shows traditional finance is willing to interact with the nascent cryptoasset industry.

It’s worth noting that earlier this year the ICE’s CEO called Bakkt a “bit of a moonshot bet,”  as it was organized in a way “very different than the way ICE typically does business.” The firm has its own offices and management team, and could undergo more rounds of financing in the future.

Bakkt And a Potential Bitcoin ETF

What’s significant about Bakkt’s launch beyond this, is that it may bolster the chances of a Bitcoin Exchange-Traded fund (ETF) being approved. Such a product would make it easier for institutional investors to gain exposure to cryptocurrencies.

In August, the US Securities and Exchange Commission (SEC) rejected nine other ETF applications, in particular highlighting how those applying hadn’t provided evidence that “bitcoin futures markets are of significant size’” for an ETF to be launched.

Once Bakkt is launched its trading volumes may very well help quell the SEC’s concerns over the bitcoin futures markets’ small size as institutions and other investors may feel comfortable entering it. Larger futures contracts trading volume, increased liquidity and a well-established company involved may prove enough to convince the SEC that the time is right for a Bitcoin ETF.

Bakkt therefore represents a very significant milestone for a maturing cryptoasset industry and may well herald the “institutional influx” that many have been anticipating since 2017. Despite the markets remaining relatively flat throughout 2019 these looming decisions in the U.S. have the power to move the entire industry forward, for better or worse.