In a significant development in the world of cryptocurrency trading, the Chicago Mercantile Exchange (CME) is rapidly closing in on Binance, the offshore unregulated exchange, for the top position in the Bitcoin futures market. CME, a regulated exchange, has recently catapulted from the fourth to the second position by open interest, a move reminiscent of the early stages of the 2020-2021 bull run. The implications of this shift, and its potential causes, are becoming increasingly apparent.
According to data from Coinglass, CME now boasts a notional open interest (OI) of $3.54 billion in Bitcoin futures, a remarkable surge that places it firmly in the second position among Bitcoin futures exchanges. Notional open interest is a metric that reflects the U.S. dollar value locked in active or open contracts. Despite this remarkable ascent, Binance continues to hold the top spot with an open interest of $3.83 billion, maintaining an 8% lead over CME.
CME’s strides in Bitcoin futures market
CME’s recent success can be attributed to its cash-settled Bitcoin futures contracts, which recently surpassed the 100,000 BTC mark for the first time on record. In addition, CME’s share of the Bitcoin futures market has surged to an all-time high of 25%, indicating a growing presence and influence in the cryptocurrency space.
CME offers two types of Bitcoin futures contracts: standard and micro. The standard contract represents 5 BTC, while the micro contract is a smaller version equivalent to one-tenth of 1 BTC. Similarly, CME provides futures contracts for Ethereum, with standard contracts representing 50 ETH and micro futures representing one-tenth of 1 ETH.
It’s worth noting that most open interest in offshore exchanges tends to concentrate on perpetual futures contracts rather than traditional futures contracts. Perpetuals are futures contracts that do not have an expiry date and utilize the funding rate mechanism to maintain alignment with the spot price.
The rapid ascent of CME in the Bitcoin futures market has prompted speculation about the driving forces behind this surge. Some observers suggest that CME’s rise is indicative of an institutional-led rally in the cryptocurrency market. Bitcoin has experienced a 27% increase in value this month, fueled by ongoing macroeconomic uncertainty and growing optimism surrounding the approval of a Bitcoin spot exchange-traded fund (ETF).
Retail investors have also played a significant role in this narrative, as evidenced by the uptick in futures-based ETFs. The rolling five-day volume for ProShares’ leading Bitcoin futures ETF saw a staggering 420% increase, reaching $340 million last week. Notably, this ETF invests in CME’s Bitcoin futures contracts, further solidifying CME’s position in the market.
However, André Dragosch, head of research at Deutsche Digital Assets, offers an alternative perspective. Dragosch suggests that CME’s ascent may be a result of traders unwinding bearish bets on offshore exchanges. He points out that while CME’s share of Bitcoin futures open interest has increased relative to other exchanges, the aggregate amount of Bitcoin futures and perpetual open interest has not seen a corresponding increase in Bitcoin terms. This implies that long futures positions may not be the primary driver behind CME’s recent surge.
As CME continues to gain ground in the Bitcoin futures market, it remains to be seen whether it can eventually surpass Binance to claim the top position. The cryptocurrency market is dynamic and influenced by various factors, including regulatory developments, market sentiment, and institutional participation.