Bitcoin ETFs And CME Futures – Biggest Winners In Retail Investor Inflows

CoinShares reported that investors poured $1,465 million into the top crypto funds, with ProShares capturing $1,237 million of the total and of which $1.45 billion went into bitcoin funds.  Separately, the number of bitcoin futures retail investors hold at the Chicago-based CME Group

CME
as “open interest” – capital tied up in futures contracts – rose 95% from 2,631 to an all-time high of 5,136 for this particular group, according to the latest Commodity Futures Trading Commission (CFTC) weekly data released on Sunday.

With each of those contracts worth the equivalent of five bitcoin – or about $321,300 as of Tuesday at close – the net capital inflow from retail investors into these contracts rose by $183 million. The CME saw the value of its crypto futures contracts rise $1.58 billion (+38%) across all trader groups. Of that total, $1.31 billion went to bitcoin futures and the remaining $270 million to CME ether futures and CME micro-bitcoin futures. Moreover, CME crypto futures trading volume peaked over $9.2 billion on Thursday, making the CME one of the largest if not the largest derivatives exchange by volume that day. 

Compared to the start of the year, the futures market reflects increases in the level of exposure by commercial traders, which include corporations and bitcoin ETF issuers like ProShares, and retail traders. Hedge funds have roughly bore the brunt of providing sell interest to all bitcoin futures buyers, with a large increase in OI in spread, meaning that an entity is both buying and selling that number of contracts – that is that they are ‘making markets’ through what is known as the carry trade: buying the commodity in the spot or cash market and selling it on the futures market. U.S. banks and even a small portion of retail traders have a higher share selling interest than at the start of year, while hedge funds have paired sharply their long bitcoin positions at the CME.

While the CFTC’s Sunday data release includes activity through Tuesday October 19, the latest CME data through Friday Oct 22 shows that OI continued to rise by a very large 3,515 contracts above Tuesday’s total – another record high. Next week’s CFTC data will reveal which type of trader group captured the lion’s share of that OI increase but it is safe to assume that commercial traders had a big increase in longs and that hedge funds participated in at least 60% of all sell positions.

Analysis

The big takeaway is that the BITO launch made retail investors act opportunistically. Their share of CME BTC futures holdings had been on a seven-month drop, but the BITO launch last week triggered a demand U-turn of CME futures at a record-setting pace. The retail-driven boost in CME BTC OI increase comes in addition to the rise in the roughly 4,000 long BTC contracts that commercial firms snatched up in the past few weeks. 

Why the sudden change? Investors familiar with CME bitcoin futures are savvy enough to figure out that the BITO ETF launch opens the gates for more crypto ETF issuance. This means that there will be demand not just for bitcoin exposure but for CME bitcoin futures contracts. In some ways, these retail investors and institutions participating in last week’s rally simply bought a hot commodity knowing there will be various more buyers – e.g., new ETF issuers – bidding up that commodity’s price.