The Chicago Mercantile Exchange (CME) is seeing an explosion in the trading of their BTC microcontracts launched, less than 2 months ago. We have finally reached 7 figures. As a reminder, the institutional market was already booming, almost a year ago.
Bitcoin micro contracts play in the big league
CME’s BTC futures didn’t wait long to cross the one million mark in traded contracts. This derivative product launched by the CME on May 3 crossed this symbolic threshold early in the week of June 21. According to CME executive Tim Mc Court, the micro-contract has been a huge hit with institutions and day-traders looking for a hedge against the risks of bitcoin’s price fluctuations.
And he’s not the only one to point out the popularity of these micro futures contracts. Global Head of Digital Assets at ED&F Man Capital Markets, Brooks Dudley, cited “higher-than-expected institutional volume,” showing “that the timing was right for a smaller Bitcoin contract.”
CME’s BTC micro contract is 1/10 the size of Bitcoin, compared to 5 BTC for the exchange’s main futures contract. That’s why it’s also called “0.1 BTC”.
Declining institutional exposure
Derivatives are one of the main drivers of Bitcoin’s price growth. They have indeed helped to increase institutional exposure to Bitcoin. The expiration of Bitcoin futures contracts, however, is a major stressor for the markets, which fear high volatility. A sense of fear that comes with an increased risk of a drop in the price of BTC at the expiry of these derivatives.
Bitcoin’s recent crash has caused institutional investors to reduce their long-term exposure to Bitcoin and other cryptocurrencies. CoinShares data, for example, shows an outflow of $79 million in the week of June 21 alone. As risk-averse investors over a relatively long period decide to liquidate their Bitcoins, they are being bought back by others who instead anticipate a long-term bull market.
The gloomy backdrop, with Bitcoin ending its worst quarter in years, has not prevented the success of CME’s micro BTC futures contracts. The crash has even fueled their popularity, with a micro contract being a welcome addition for institutional investors looking to reduce their exposure, without exiting the BTC markets altogether.