CME Becomes Biggest Bitcoin Futures Trading Platform

Surging Bitcoin (BTCUSD) prices last December led to a jump in open interest and trading volume for Bitcoin futures at the Chicago Mercantile Exchange (CME) as traders sought to hedge their Bitcoin positions in the spot market by opening futures positions at the exchange. In turn, this helped the exchange become the world's biggest trading exchange for Bitcoin futures by trading volume.

According to data from skew.com, a crypto analytics platform, CME accounted for 19.09%, or $2.1 billion of the $11 billion overall open interest in Bitcoin in futures markets across the world, ahead of second-ranked OKEx in China.

Earlier this week, CME reported that the average daily volume of Bitcoin futures trading at CME reached 11,179 contracts in December, an increase of 114% from the same time period a year ago. The average daily open interest, or the number of open futures positions that have not been settled, for the same period vaulted to 11,701 contracts, up by 252% from December 2019.

Both figures are the culmination of a year of increasing prices for Bitcoin. Between January 2020 and December 2020, Bitcoin price skyrocketed by approximately 319% and surpassed the previous price record of $20,000.

As the cryptocurrency attracted attention from news outlets and investors, a similar story played out at other derivatives exchanges. Again, skew.com reports that trading volume in cryptocurrency futures contracts reached $1.06 trillion in December 2020, up from $282.6 billion in December 2019.

A Sign of Institutional Interest

The change in trading volume figures for Bitcoin futures at CME is notable for two reasons.

First, the increase occurred after a prolonged price slump. The exchange introduced Bitcoin futures with much fanfare during the 2017 crypto bull run. A subsequent price crash diminished trading volumes at the venue, and institutional traders, who were expected to power the Bitcoin futures market, lost interest in its products. That is, until the turnaround in Bitcoin's fortunes last year. CME has announced that it added 3,050 new trading accounts in 2020, an increase of 84% as compared to 2019 figures.

Second, CME's trading volume increase could be a bellwether for institutional interest in Bitcoin futures. While other exchanges have racked up higher trading volume figures in dollar terms, CME's regulatory and liquidity advantage, coupled with its pedigree and position as the world's premier exchange for futures trading, offers institutional investors and large traders a degree of comfort that is absent at new crypto exchanges.

The number of large open interest holders at the exchange rose by 121% to a record figure of 97 during the fourth quarter of 2020. At the beginning of the month, that figure was even higher at 110. The exchange stated that the rising figures indicated "strengthening institutional interest" in its futures product. Interestingly, approximately 42% of trading volume at the exchange was from traders outside the United States.