31 Aug 2021

The open interest on CME is once again approaching $2 billion

The open interest on the CME futures has climbed in the last months and is once again approaching $2 billion.
Source: Skew, The Block (CFTC COT)
The open interest on CME’s bitcoin futures currently sits at $1.9 billion and has seen steady growth throughout August. Since the short squeeze on July 26th, leveraged funds (hedge funds) have been accumulating new short positions. While hedge funds have been accumulating shorts, the cash-and-carry trade has yielded relatively weak returns on the CME futures. However, the leveraged funds are likely not placing naked short bets on bitcoin. They could have exposure through other markets and use CME to hedge out risk. One possible explanation for the growing short exposure among hedge funds could be the Grayscale discount. Some funds might expect the GBTC discount to disappear over time and seek to hedge this bet using futures. Last week, Morgan Stanley bought upwards of 6.5 million GBTC shares across a dozen of funds. Additionally, Bill Miller’s flagship fund disclosed in an Aug 27th SEC filing that the fund owned 1.5 million shares in GBTC. These types of investors could be interested in hedging their positions through the CME futures. Interestingly, all other categories of traders are net-long in the futures, with asset managers, in particular, striking out as an interesting segment.
Asset managers feeling bullish on bitcoin?
Asset managers with long exposure in BTC sit at an all-time high of $165m. The net exposure of asset managers is positive for the first time since April, indicating that the institutions have turned bullish on bitcoin.
Source: Skew, The Block (CFTC COT)
The open interest from asset managers on CME has been net positive throughout August, with the net exposure currently sitting at $91.6 million, which is the highest long exposure seen among asset managers since January 21st. The asset managers category includes pension funds, endowments, insurance companies, mutual funds, and those portfolio/investment managers whose clients are predominantly institutional. The open interest affiliated with long positions from asset managers has never been higher than its current levels of $165.7 million, suggesting that asset managers have a strong conviction on further upside for bitcoin. Short positions among asset managers currently sit at $74.1m, substantially below its peak of $264m ahead of the May 19th crash. Overall, asset managers were largely net long during the fall of 2020 as the bull market was brewing. As bitcoin surpassed the 2017 highs and started moving upwards with force, short interest accumulated, and asset managers grew more cautious. Prior to the May 19th crash, asset managers were heavily short bitcoin, with a net exposure of $156m towards the short side on May 19th. With asset managers now flipping net positive, it seems like the active institutional investors are feeling bullish on bitcoin.
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