Institutions make Big Bets on Bitcoin

Bit Team
3 min readMar 19, 2021

According to the CME Group, the world’s largest futures and options exchange, open interest in Bitcoin futures, expressed in the terms of contracts, has increased by at least 100% for eight consecutive months, continuing until February 2021.

Open Interest in Bitcoin Futures is growing

The capital associated with these contracts grew exponentially by 1405% per year, from $ 156 million at the end of February 2020, to $ 2.34 billion a year later. This increase is more than three times the 425% increase in the price of Bitcoin over the past year, and is further evidence of the unprecedented level of demand for access to this asset class among institutional investors.

Moreover, since Bitcoin recently set a new record, surpassing $ 61,000, institutional interest in cryptocurrencies and derivatives such as CME futures is likely to remain high and possibly grow.

Annual BTC Price Change, BTC Futures Contracts Traded and Held with Open Interest

The breakdown into long and short segments provides additional information

But to truly understand the implications of this expanding adoption and what we can expect as prices continue to rise, it’s important to go beyond the top numbers and understand what’s happening below the surface. Fortunately, the data provided by the futures market participants to the US regulatory body breaks down the market participants into categories, shedding further light on the mechanisms underlying this growing institutional interest. These four groups consist of banks, asset managers, leveraged funds, and “other” firms that require reporting.

Interestingly, right now, leveraged funds, including hedge funds and a number of small commodity trading advisory firms (CTA), hold the largest share of open interest in BTC futures, and as of early March 2021, have a net short position at a 3: 1 ratio. This means that they, as a group, mostly bet against the asset.

The CME’s Bitcoin bulls, by contrast, are mostly made up of dealer banks, companies from the “other” category, i.e. corporate treasuries, foreign financial institutions, and unregistered market participants, including active retail traders.

In this case, the composition of the group, which is pure long or pure short, changes over time. For example, recent data suggests that some hedge funds that have a net short position are reducing their positions, which is perhaps an optimistic signal for the asset.

What lies ahead

As if on cue, in a podcast broadcast on March 5, Matthew McDermott, head of digital assets at Goldman Sachs, indicated that when the bank re-opens its cryptocurrency trading desk, it will include CME Bitcoin futures as a direct result of customer demand and feedback received during approximately 300 interactions with institutional clients. One can only expect a rise if the price of Bitcoin continues to rise.

However, perhaps a more compelling sign will be the level of acceptance of CME’s other cryptocurrency derivatives products, including its options contracts and recently launched Ethereum futures, which are much smaller in comparison. Tim McCourt, global head of equity indices and alternative investment products at CME Group, told Forbes that CME is pleased with the early rollout of its Ether futures product: 695,550 ETNs have already been sold on its platform.

As for the BTC option contract, the CME pointed out that it was “designed to help both institutions and professional traders manage the availability of Bitcoin in the spot market,” and that nearly 41,000 of these contracts have been sold since their launch.

Now that Bitcoin seems to have gained institutional acceptance, as evidenced by the adoption of CME Bitcoin futures, these other products may be benchmarks that signal the long-term trajectory of the industry.