2019 was a significant year for firms like Chicago Mercantile Exchange (CME) and Bakkt due to great Bitcoin derivatives action. It’s no surprise why the Bitcoin futures of CME remain strong, while the physically delivered BTC futures of Bakkt are consistently growing in daily volumes this year.
Nikolaos Panigirtzoglou, Managing Director of JP Morgan, said that the activity of the CME Bitcoin futures has increased in 2019. This implies that the demand for Bitcoin and any pther options contract dedicated for dominant crypto is high.
For more than two years, CME has been offering cash-settled BTC futures contracts. In 2017, both institutional and mainstream investors became more aware of crypto market. That is due to curiosity driven by CME’s BTC future products.
In September 2019, Bakkt started to provide physically delivered BTC future contracts. Both CME’s and Bakkt’s trading volumes show that investors are interested to their offerings. So, many expect that derivatives money from BTC will continue to flow into the first month of 2020.
Furthermore, the Bitcoin futures volume of Bakkt touched the all-time high on December 18, 2019, while on January 7, it came awfully close to the all-time high. As for the CME’s BTC futures volume, Ecoinometrics explained in its report that “strong trade volume and open interest are staying above average compared to the past few months.
According to Panigirtzoglou, “There has been a step increase in the activity of the underlying CME features contract over the past few days.”
He also added that, “This unusually strong activity over the past few days likely reflects the high anticipation among market participants of the option contract.”
Based on the report of Panigirtzoglou, the intrinsic value of Bitcoin has been rising. On the other hand, it remains below the market price at the moment due to the significant divergence in the mid-2019.
The analyst concluded that, “The market price has declined by nearly 40% from its peak while the intrinsic value has been risen around 10%, [but] the gap has not yet fully closed, suggesting some downside risk remains.”
Throughout 2019, the significant increase in BTC volume in the futures market happen along with the constant increase in the open interest.
The institutional demand is important to ensure price trend and long-term growth of BTC due to its ability in removing the dependence of asset on retail investors. Besides, this kind of demand can introduce the broader base of investors to Bitcoin. These investors have more wealth compared to retail or individual investors.
Brian Armstrond, CEO of Coinbase, said, “Something like 90% of the money in the world is locked up in institutions, so this will likely drive a lot of demand for crypto assets.”
Meanwhile, Xapo CEO stated that, “Bitcoin is potentially superior to gold and the US dollar as a global non-political standard of value and settlement because there will never be more than 21 million bitcoins and because Bitcoin is open and uncensorable.”
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