The crypto market is off to a strong start in 2023, with major cryptocurrencies like and gaining over 30% year-to-date. Growing institutional participation in supported this strong performance, as indicated by open interest on CME Bitcoin futures, which jumped to 21%, near all-time highs.
The resurgence comes after a 10-month downward trend in institutional participation that apparently ended with the collapse of cryptocurrency exchange FTX in November last year.
Institutional investors are making a comeback
The Chicago Mercantile Exchange (CME) Group is one of the world’s largest derivatives exchanges that offers futures and options trading services in industry segments such as stock indices, currencies, real estate, commodities and cryptocurrencies. Generally, an increase in crypto-related trading volumes on the platform suggests an influx of institutional investors into the digital asset space.
Interestingly, the strong rally in crypto this year has been supported by growing institutional participation in BTC futures, according to data from Arcane Research. Total open interest on BTC futures currently sits at 21% on the CME, which has only been higher twice: in October 2021 when the first Bitcoin-linked ETF was launched and in late December 2021 .
Crypto-related trading volume on CME initially experienced a short-lived rally in November last year after the collapse of FTX. At the time, institutional investors began to take advantage of the crypto bloodbath to short Bitcoin. However, the volume of crypto derivatives suffered a sharp decline in the last month of 2022.
As Bitcoin rebounded earlier this year, total open interest on CME also started to gain momentum. According to Arcane, the surge comes as investors began buying the heavily discounted GBTC and hedging via CME futures after Genesis revealed that Gemini had sold 30.9 million GBTC shares in its filing. balance sheet. The report said:
“CME’s surge in January, on the other hand, was accompanied by strong markets. BTC is up 36% this month. CME futures started trading at a slight premium to the spot market and moved back into contango. And active participation, defined as non-ETF activity, is driving the recent surge.
Bitcoin open interest, the value of all open positions in BTC derivatives, has fallen by 255,000 BTC over the past three months. “While the drop in FTX partly explains the drop in OI in offshore markets, we see that open interest has moved significantly,” Arcane said.
As reported, Bitcoin’s open interest has fallen more than 25% this year. Similarly, aggregate offshore open interest is down 18.6% since November excluding FTX data. However, this stands in stark contrast to CME’s open interest, which has risen 23.6% since FTX fell. Arcane note:
“The different paths were particularly pronounced in early January as offshore IO fell significantly due to several short cuts, while CME maintained robust growth undisturbed by similar momentum.”
CME Futures hit hard by Crypto Winter
CME’s crypto trading volumes saw a sharp decline last year amid a cruel crypto winter that saw an estimated $2 trillion of value evaporate from the crypto market. Almost all major cryptocurrencies, including Bitcoin and Ethereum, have lost more than 70% of their value from all-time highs.
In December 2022, total crypto derivatives volume on CME fell 49.2% to $14.2 billion, according to CryptoCompare, its lowest level since October 2020. Bitcoin futures volume fell 48%, 3% to $13.2 billion, with Ethereum futures volume dropping 55.3% to $481 million. . The report said:
“Option trading on the exchange also fell significantly in December, with BTC options trading volume down 57.4% to $225 million, the lowest figure since July 2021. Trading volume on ETH options on CME also fell 41.5% to $2.00 million, recording the lowest trading volume. in its history. »
The fall in derivatives volume was in line with a decline in spot trading volumes across the industry, particularly at centralized exchanges. In the last month of 2022, total cash trading volume fell 48.4% to $544 billion, the lowest figure since December 2019.
In total, the cumulative trading volume on centralized exchanges decreased by 46.2% in 2022, according to another report by CryptoCompare. The report cites declining crypto prices and lower volatility as key factors impacting lower trading volumes.
Meanwhile, crypto prices entered a plateau over the past few days following the weekend rally. Bitcoin is trading around $22,600, almost flat over the past day. Ethereum, on the other hand, lost more than 4%, falling to around $1,500.
This article originally appeared on The Tokenist. Check out The Tokenist’s free newsletter, Financing in five minutesfor weekly analysis of the biggest trends in finance and technology.