CME Group Bitcoin Futures’ Open Interest Slides 24% as Spot ETFs Gain Traction

The launch of Bitcoin (BTC) spot exchange-traded funds (ETFs) in the United States has impacted investor demand for Bitcoin futures, leading to a decline in open interest.

Data compiled by Bloomberg reveals that open interest in CME Group Bitcoin futures contracts dropped by approximately 24%, reaching 20,679 contracts by January 30th, just three weeks after the introduction of 11 spot ETFs.

CME Bitcoin futures contracts have been popular among investors due to their regulated nature, providing a secure platform for exposure to Bitcoin.

However, now that spot Bitcoin ETFs can fulfill a similar role, investor interest in Bitcoin futures has waned.

CME Futures Were Used in Arbitrage Activity

In a note to Bloomberg, crypto asset manager DACM said that CME futures were previously used in arbitrage activity involving Grayscale Bitcoin Trust (GBTC).

The fund, before being converted into a spot ETF, used to trade at a premium or discount to its Net Asset Value (NAV) due to supply and demand imbalances, the requirement for accredited investors, lock-up periods, market sentiment, and arbitrage opportunities.

When demand for GBTC shares exceeded supply, it led to a premium, while factors like investor sentiment and arbitrage trading could influence its pricing relative to the underlying Bitcoin’s value.

However, now that the fund has been converted into an ETF, this arbitrage trade has ceased.

Inflows of $247m into ETFs yesterday on a rather risk-off day in markets🚀https://t.co/wJRmzUETKm

Probably offset by reduction in CME futures OI and traders closing positions at 0.5 fib retracement of the sell the news move from $49k.

Will stay bullish as long as those… https://t.co/96lPoyHV91

— Afro Punk Capital (@AfroPunkCapital) January 31, 2024

Furthermore, Vetle Lunde, senior analyst at K33 Research, suggested that the shift towards ETFs and the cooling of Bitcoin’s rally could lead to reduced activity in CME Bitcoin futures.

However, he also emphasized that these futures contracts remain crucial in maintaining higher liquidity in the cryptocurrency market.

Lunde suggests that they could potentially serve as hedging instruments for authorized participants involved in managing the creation and redemption of ETF shares.

“Due to GBTC’s negative premium, long GBTC and short CME Bitcoin futures is a popular trade,” said DACM co-founder Richard Galvin, adding:

“This trade paid off, causing investors to sell their GBTC shares and The liquidation of CME positions resulted in a decrease in open positions.”

SEC Approval of ETFs End Speculations

There has been reduced volatility in the price of Bitcoin following the recent approval of ETFs by the SEC, which put an end to speculation surrounding this development, according to Matteo Greco, research analyst at Fineqia International.

The introduction of Bitcoin Spot ETFs has attracted significant inflows from traditional finance into the digital assets market, Greco said in a note shared with Cryptonews.com.

He said that since their launch, the 11 Spot ETFs have collectively attracted approximately $1.15 billion in cumulative inflows.

Still, the leading cryptocurrency is poised to achieve its fifth consecutive monthly gain, marking its longest winning streak since the pandemic-induced rally fueled by accommodative monetary policies.

In other words, if Bitcoin maintains its upward trajectory by the end of the month, it will achieve its longest streak of monthly gains since the six months spanning October 2020 to March 2021 during which it reached a record high of almost $69,000.