Considering Institutional FOMO? Here Is CME Bitcoin Futures Open Interest Soaring To $841M

The CME Bitcoin Futures 

Further highlighting the growing institutional interest in BTC, the CME Bitcoin futures has set a new open interest high at $841 million.

Reaching a new all-time high at $841 million in the open interest on Chicago Mercantile Exchange Bitcoin futures. 

It does signal that professional investor’s interest in Bitcoin continues to grow at an immense rate although this can't be deemed bullish on a standalone basis. 

Announcing the acquisitions of 21,000 Bitcoin for $250 M comes further proof of this as MicroStrategy as a Nasdaq listed company is worth more than $1.2 billion. 

Savvy investors and entrepreneurs have recently built sizable positions in Bitcoin and some altcoins showing regardless of what critics have said about cryptocurrencies. 

How Futures Premium Provides More Useful Data?

Measuring their premium versus Bitcoin’s market price at spot exchanges is the best way to gauge investor sentiment on futures contracts. For 1-month contracts in CME futures, the indicator typically displays a 0.5% to 1% premium. 

It is only natural that sellers are required to put up more money by postponing the financial settlement date. 

As one can sell the futures contract while simultaneously buying the same amount on the spot market, on the other hand, an excessive premium creates an arbitrage opportunity. Commonly known as ‘cash and carry’ is this neutral market.

There comes a positive basis indicating contango which means sellers are demanding more money to thereby postpone the settlement. 

The primary indicator of a healthy and bullish derivatives market is the situation known as contango being true especially when open interest increases with new positions being created under the ideal circumstance. 

Now CME Bitcoin Options Markets Are Growing

Having just launched in January 2020, CME Bitcoin options markets are relatively new. Compared to the leading exchange Derbit, it certainly looks modest although reaching an impressive $440million open interest in late-June by CME. 

As they are heavily concentrated on call options, the current $171 million CME options open interest carries a trend that has been consistent since its launch. 

Also known as a strike, this means investors are able to capitalise on the right to acquire CME Bitcoin futures at a fixed price. 

66% of CME open interests sit on the August 28 expiry, as also another 14% is set to mature in late September as things currently stand. 

The CME Options Also Signal Bullishness

Usually related to bullish strategies are call options. Being rather neutral aiming to generate a fixed income as long as the underlying asset remains above a certain threshold, are these also used for the covered call. 

By monitoring to see if the percentage of open interest is well below current market levels, the best way is to spot call options thereby used for market neutral strategies. 

Crucial to correctly gauge if call options are being used mostly for bullish or neutral positions is done by spotting this difference. 

The absence of volumes below the $10,000 level is the first thing to note. 80% of the current $171 million in CME options open interest are call options coming as another bullish indicator. 

One can infer those options that are mostly being used on bullish strategies, considering the most significant strike levels of August and September contracts. 

Why Are Broader Options Markets Bullish?

One should review the total open interest by the strike by aggregating every derivatives exchange, ascertaining whether the positive stance holds on the broader options markets. 

A substantial open interest on strike below market levels is either neutral or bearish regardless of whether they are more concentrated on call or put options. 

Totaling $514 million there are currently 44,700 BTC open interests below $10,000. Signaling bullishness from options markets and corroborating the CME call options analyses this figure represents only 28% of the current $1.84 billion aggregate open interest. 

Finally, It Helps To Look To The Present, Not The Past

One can gauge professional traders’ sentiment and better evaluate today’s failure to break $12,000 resistance and the subsequent test of $11,150 level, by monitoring derivatives markets. 

Having more importance than charts and trading data form August 2019 markets, both futures and options indicators are signaling bullishness 
Bitcoin tested $12,000 for a week back then before declining 20% over the next five days. 

The question here is will the pattern repeat this time also and it is a good question. Familiar with just how volatile the digital asset is, comes a valid fear of veteran Bitcoin investors. 

These are not compelling signals of bearishness so far as for bulls, fortunately, is the perspective of the BTC derivatives markets.