25 Jan 2023

Growing institutional presence

The strong start to the year has been backed by growing institutional participation in BTC futures. CME’s share of the total open interest in BTC futures currently sits at 21%, near all-time highs.
Source: Skew, Laevitas, CME Group
CME’s market dominance has only been higher on two previous occasions, during the launch of the futures-based ETFs in October 2021 and in late December 2021. The 10-month long trend of declining institutional speculative participation seemingly ended during the FTX collapse in November. In November, CME experienced a short-lived massive surge in activity in a massive push related to hedges. Interestingly, leverage in offshore derivatives has gradually become more and more concentrated in perps versus futures. This has led the futures share of the total open interest in BTC derivatives to fall from 45% in April 2021 to 29% today.
Source: Skew, Laevitas, CME Group
This has caused CME's relevancy within pure futures products to grow. As of today, CME represents 71% of the total OI in BTC futures, up from 45% in April 2021.
Source: Skew, Laevitas, CME Group
Last week’s Chapter 11 filing by Genesis disclosed that Gemini had sold 30.9m GBTC shares in a private arrangement in November. This sale, alongside an obliterated sentiment and market structure, might be the root cause behind the initial surge in CME activity back then as some investor bought the heavily discounted GBTC and hedged through CME futures. CME’s January push, on the other hand, has been accompanied by strong markets. BTC is up 36% this month. CME futures have started trading at a slight premium to the spot market and have returned into contango.
Source: Tradingview
And active participation, defined as non-ETF activity, is behind the recent surge (as we illustrate further below). Positive tendencies toppled with the growing relevancy of CME is a promising observation in light of CME’s important role in BTC’s price discovery, and it suggests that institutional flows have contributed to the recent strength.
Source: Coinglass, ProShares, Valkyrie, VanEck
Offshore OI down, CME OI up
The global open interest is down 255,000 BTC in the last three months after falling from an all-time high of 666,000 BTC. While FTX’s fall explains parts of the decline in OI in offshore markets, we see that open interest has trended significantly lower on other exchanges as well.
Source: Laevitas, CME Group. *FTX not included in offshore data
Since November 1, the aggregated offshore open interest, when excluding FTX data, is down 18.6%. CME’s open interest is a stark outlier in this trend and has seen its open interest grow by 23.6% since November 1. The differing paths have been particularly pronounced in early January, as offshore OI has fallen considerably due to several short squeezes, while CME has maintained a robust growth undisturbed by similar dynamics.
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