CME Bitcoin futures show investors betting on $40K BTC price

Institutional investors' interest in Bitcoin (BTC) became evident on November 10 when Chicago Mercantile Exchange (CME) Bitcoin futures overtook Binance's BTC futures in volume. According to BTC derivatives metrics, those investors are showing strong faith in Bitcoin's ability to break above $40,000 in the short term.

CME's current Bitcoin futures open interest stands at $4.35 billion, the highest since Bitcoin hit an all-time high of $69,000 in November 2021 – a clear indication of increased interest. But is it enough to justify further price gains?

The amazing growth of CME and the estimation of Bitcoin ETF

A 125% increase in CME's BTC futures from an open interest of $1.93 billion in mid-October is tied to the expectation of approval of a Bitcoin exchange-traded fund (ETF). However, it is important to note that there is no direct correlation between this activity and the actions of market makers or issuers. Cryptocurrency analyst JJcycles raised this hypothesis in a social media post on November 26.

What if the CME (US institutions) opened longs to wait for the imminent #Bitcoin ETF approval?

Open interest has definitely increased on CME over the past two weeks.

✍️ pic.twitter.com/poFpuOidL0

— JJcycles (@JJcycles) November 26, 2023

To avoid the high costs associated with futures contracts, institutional investors have various options. For example, you can choose CME Bitcoin options, which require less capital and offer similar long-term exposure. Additionally, they offer regulated ETF and Exchange Traded Notes (ETN) trading options in jurisdictions such as Canada, Brazil and Europe.

It seems a bit naïve to believe that the world's biggest asset managers will take risky bets on a decision by the US Securities and Exchange Commission, which is not expected until mid-January. Yet, the undeniable growth in CME Bitcoin futures open interest is strong evidence that institutional investors are setting their sights on the cryptocurrency.

It may seem naïve to think that the world's largest asset managers will take significant risks with derivatives contracts, with a decision at the SEC expected only in mid-January. However, the undeniable growth in open interest in CME Bitcoin futures will increase the interest of institutional investors in the cryptocurrency market.

CME's Bitcoin Futures On November 28, he showed great optimism.

While CME's Bitcoin futures activity has been steadily increasing, the most notable development has been the increase in the annual premium (basis rate) of the contracts. In independent markets, monthly futures contracts typically trade at a base rate of 5% to 10% and carry longer settlement periods. This situation, known as contango, is not unique to cryptocurrency derivatives.

In the year On November 28, the annualized premium for CME Bitcoin futures rose from 15% to 34%, eventually stabilizing at 23% by the end of the day. A base rate above 20% indicates high optimism, suggesting buyers are willing to pay a high premium to establish long positions. Currently, the rate is 14%, which indicates that there is no reason for the abnormal activity.

In the year It is worth noting that the price of Bitcoin rose from $37,100 to $38,200 during the eight-hour period of November 28. However, since arbitrage between the two occurs in milliseconds, it is challenging to determine whether this increase is driven by the spot market or futures contracts. Rather than fixate on intra-day price movements, traders should look to BTC option market data to ensure strong demand from institutional investors.

Related: Why is the crypto market down today?

If traders anticipate a decline in the price of Bitcoin, the delta skew metric is expected to be above 7%, but bullish periods typically result in a -7% skew.

In the last month, the 30-day BTC options 25% delta skew consistently -7% below the threshold standing near -10% on November 28. This data supports the bullish sentiment among institutional investors using CME Bitcoin futures, casting. Doubts on the theory of whales accumulating assets before ETF approval. In essence, derivatives measures do not indicate excessive short-term optimism.

If whales and market makers are 90% certain of the SEC confirmation, as expected by Bloomberg ETF analysts, the delta skew of BTC options is likely to be much lower.

However, with the price of Bitcoin trading near $38,000, it seems that bulls will continue to oppose the resistance levels until the hope of getting ETF approval remains a driving force.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.