CME, where institutions trade Bitcoin futures, surpasses Binance in trading volume

Apparently, CME Group is now the place to trade Bitcoin futures. CME’s BTC futures trading volume has now surpassed that of Binance, the world’s largest cryptocurrency exchange, for the first time. This shift has happened before, but not often, and is often seen as a sign of increased institutional interest in cryptocurrencies.

CME is a sponsor of this week’s The Node newsletter (btw, but (trust me) unrelated), which is generally viewed as an exchange for adults. However, for Binance and others, I think very few people will go to work and trade Bitcoin on a local cryptocurrency exchange.

Don’t just take my word for it, market expert Omkar Godbole said on TV’s Pioneer program that CME is considered the representative of institutional activity in the cryptocurrency space. Good growth in CME futures open interest, which is the dollar value of existing futures contracts.

Perhaps this interest is being driven by the price of Bitcoin, which is up over 100% so far this year, and institutions looking to take some action. Or, it's because they're betting that reports of a potential Bitcoin exchange-traded fund (ETF) listing before the end of the year or next year's Bitcoin halving will spur more buying.

Futures are a derivatives contract that requires buyers to purchase Bitcoin at a predetermined price at a later date. They are essentially a hedge against future price movements, often used to bet that you can buy an asset today for less than you can later.

Many people seem to think that Bitcoin has room to continue to grow. Bitwise Chief Investment Officer Matt Hougan essentially said that all the Bitcoin ETF hype has not yet been fully priced in. To be sure, chief investment officers at cryptocurrency investment firms have plenty of incentives to believe something similar and drum up support for the thesis.

The question of whether the Bitcoin halving has been priced in is also a thorny one, especially when the halving is still six months away. The idea that fewer new Bitcoins are released into circulation (as part of a “mining subsidy that is scheduled to be halved every four years – hence the term “halving””) certainly makes sense and will benefit Bitcoin’s price. The supply and demand theory behind the idea that Bitcoin is capped at 21 million and is scarce and therefore valuable is the same supply and demand theory.

But if you believe in efficient markets, then you have to take into account that prearranged events that 99.9% of Bitcoin holders know about and are eagerly awaiting must be priced in. Then again, it’s hard to say that crypto markets are efficient. The man who proposed the efficient markets theory also stated that it is impossible to find a $10 bill on the street because, if there is one, it has already been pocketed by someone. However, I make money (and lose money) all the time, while cryptocurrency traders sometimes make money from market inefficiencies.

Anyway, to make things more complicated, Godbole said that typically when CME’s Bitcoin futures open interest increases, it’s a sign that Bitcoin’s price is about to fall. This isn’t a hard and fast rule, but it has become a clear trend after CME upended Binance a few times.

What’s more, while CME Group’s open interest has increased, there could be multiple factors responsible for this flip. Firstly, Binance’s futures contracts market share has been declining compared to CME, possibly due to the exchange’s legal issues in the US and EU

Finally, there are also differences in the types of derivatives traded on CME, where Some traders placed bullish bets, and there was actually a large amount of open shorts (bearish bets on the price of BTC) on Binance that were liquidated during the CME. Gobler said there has been a recent price increase.

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