The Growing Demand for Bitcoin Among Institutional Investors

On November 10, the Chicago Mercantile Exchange (CME) Bitcoin futures market surpassed Binance’s BTC futures market in terms of size, indicating a rising demand for Bitcoin among institutional investors. This trend is further supported by the strong confidence these investors have in Bitcoin’s potential to break above the $40,000 mark in the short term.

The current open interest of CME Bitcoin futures stands at $4.35 billion, the highest since November 2021 when Bitcoin reached its all-time high of $69,000. This surge in open interest points towards heightened interest from institutional investors, but the question remains: is it enough to justify further price gains?

The impressive growth in CME’s BTC futures open interest, which has surged by 125% from $1.93 billion in mid-October, is largely tied to the anticipation of the approval of a spot Bitcoin ETF. However, it’s important to note that this movement is not directly correlated with the actions of market makers or issuers. Cryptocurrency analyst JJcycles raised this hypothesis in a social media post, suggesting that US institutions may have opened longs to hedge for the potential approval of a spot Bitcoin ETF.

Institutional investors have various options to avoid the high costs associated with futures contracts. They can opt for CME Bitcoin options, which require less capital and offer similar leveraged long exposure. Additionally, regulated ETF and exchange-traded notes (ETN) trading in regions like Canada, Brazil, and Europe provide viable alternatives.

While it may seem naive to think that the world’s largest asset managers would take significant risks with derivatives contracts on a decision dependent on the US Securities and Exchange Commission (SEC), the undeniable growth in CME Bitcoin futures open interest underscores the increasing interest of institutional investors in the cryptocurrency market.

An interesting development in the CME Bitcoin futures market is the spike in the contracts’ annualized premium (basis rate). On November 28, the annualized premium surged from 15% to 34%, eventually stabilizing at 23% by the end of the day. A basis rate exceeding 20% indicates substantial optimism, suggesting that buyers were willing to pay a significant premium to establish leveraged long positions. Currently, the metric stands at 14%, indicating that the unusual movement is no longer a factor.

It’s worth noting that during that 8-hour period on November 28, Bitcoin’s price rose from $37,100 to $38,200. However, it’s challenging to determine whether this surge was driven by the spot market or futures contracts, as arbitrage between the two occurs in milliseconds. Traders should instead look to BTC option markets data for confirmation of heightened interest from institutional investors.

Over the past month, the 30-day BTC options 25% delta skew has consistently remained below the -7% 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 ahead of a potential spot ETF approval. In essence, derivatives metrics do not indicate excessive short-term optimism.

If whales and market makers were genuinely 90% certain of SEC approval, the BTC options delta skew would likely be much lower. Nonetheless, with Bitcoin’s price trading near $38,000, it appears that bulls will continue to challenge resistance levels as long as the hope for a spot ETF approval remains a driving force.

Please note that this article is for general information purposes and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.