As Bitcoin Surpasses $ 55,000, CME Futures Data Is Even More Bullish

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MIAMI, FLORIDA – JUNE 04: Michael Saylor, CEO of MicroStrategy, walks Bitcoin 2021 … [+] Convention, a cryptocurrency conference held at the Mana Convention Center in Wynwood on June 04, 2021 in Miami, Florida. The crypto conference is expected to attract 50,000 people and will run from Friday June 4 to June 6. (Photo by Joe Raedle / Getty Images)

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A resurgent bitcoin broke $ 50,000 on Tuesday for the first time since early September, and $ 55,000 this morning. The bullish sentiment in crypto reflects, in part, statements from Washington DC, SEC Gary Gensler and Fed Chairman Jerome Powell disavowing a ban on bitcoin, and the usual trend for prices to surge after periods of time. low volatility. Additionally, for now, bitcoin appears to have allayed concerns about Fed tightening and more crackdowns from China.

Now, based on recent trade data from the Chicago Mercantile Exchange, he seems hungry for a lot more. After finally escaping the $ 40,000, bitcoin looks set to challenge $ 60,000 before (maybe) aiming for $ 64,900, its high from mid-April in the coming weeks. If this rally were to materialize, it would represent a 25% price increase over current prices. Here are four bullish takeaways from the latest CFTC Commitments of Traders data.

1. The open interest of BTC futures increases

Positive open interest (OI) growth, while not necessarily a factor in raising prices, tends to be positively correlated with these. As an illustration, 2020 was a banner year for CME BTC futures contracts with a 97% increase in OI and a 280% increase in the price of bitcoin. This year, the price of bitcoin is up 83%, but the OI of BTC futures is down 17%. However, that seems to be changing. CME BTC OI has been a recent teardown, increasing 33% from September 7 to October 5 – most over the past week.

Forbes Digital Assets study on CFTC’s weekly trader engagement data, reflecting open interest from … [+] Bitcoin futures contracts against the bitcoin spot price.

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2. Companies overfill long positions

Second, the trading sector usually made up of hedging companies with deep industry knowledge and a more conservative stance has stepped up its purchases of BTC futures. As a group, the companies now hold a net position equivalent to just over 10,000 bitcoins, with a value north of $ 620 million as of October 5, up 75% in the past two weeks. It should be noted that these commercial buyers are few in number of the 10 large companies according to the CFTC records (for more detailed information on market players, please see the appendix) but this remains significant as their market footprint concentrated and substantial more than compensates for the relatively low numbers. .

This dynamic also suggests that traders are betting that the worst of a BTC price drop is over. Since companies own bitcoins for the long term, they are likely to defend the price at which they trade (e.g., somewhere above $ 40,000), which translates into bad news for them. BTC sellers.

We do not know the identity of these companies, but they may fall under a few buckets. There are dozens of publicly traded companies with bitcoin on their balance sheets that may be looking for other ways to profit from the asset. Additionally, some of these companies could be first-time adopters who want to gain exposure to price without having to manage or hold the asset.

Forbes Analysis of CME Bitcoin Futures Open Interest Data from CFTC Weekly Commitments of … [+] Trader report.

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Forbes Analysis of CME Bitcoin Futures Data from CFTC Commitments of Traders Weekly Data.

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3. Short hedge funds are not necessarily bearish for Bitcoin

Of course, there are two aspects to every trade, so the increased long exposure of companies is offset at the CME by the increase in short positions of the leveraged companies. However, this is not the whole picture. In scenarios like this, hedge funds often use short positions to hedge against long exposure elsewhere, such as in the spot market. There are as many as two dozen hedge funds and CTA companies with the sophistication to maintain BTC short positions over time by buying bitcoin in the spot market and selling it forward in order to create liquidity in it. last and gain a gap in the process.

For example, in the forex market, key players such as XTX Markets and Citadel Securities, switch between spot and futures markets to provide liquidity to EUR-USD price takers while hedging these positions using of CME-EUR futures contracts. These price takers could be retail brokerage firms or Tier 2 banks. The CME futures market has traditionally been one of the primary places where participants can quickly find the latest price anonymously. This anonymous electronic market access allows tech-savvy market participants, many of whom are based in Chicago, to have the ability to run a trading business where at least one side of their trading activity (the futures side) is predictable and useful in offsetting the risks of spot trading. .

Forbes Study of CME Bitcoin Futures Data from CFTC Commitments of Traders Weekly Report Data

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4. Trade traders have seen increased exposure to both BTC and ETH futures

In addition to increasing their long exposure to bitcoin, companies are adding an increasing degree of diversification to their portfolios by increasing their positions in CME ether futures. Since May, trading traders have reduced their bitcoin futures holdings to add ether futures, but now they are increasing bitcoin futures while keeping ETH futures roughly unchanged. since the beginning of September to just over 1,400 contracts. This increase in bitcoin weight is consistent with other signs of growing institutional interest in altcoins, such as institutional investment flows in ETP products.

Forbes Study of CME Bitcoin Futures Data from CFTC Commitments of Traders Weekly Report Data

Forbes

Forbes Analysis of CME Crypto Futures Open Interest Drawn from CFTC Trader Weekly Commitments … [+] The data

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ANNEX

The world of CME crypto futures market participants consists of two main groups, those who are required to report their positions and the others, which are mainly a few thousand wealthy retail traders with a BTC futures contract or more, each contract is worth 5 BTC making the contract range in price between $ 200,000 and $ 300,000 depending on the price of bitcoin. The reporting group has between 70 and 110 companies, of which the largest group are hedge funds with an average of 56 companies.

Since bitcoin peaked in mid-April, the number of major market players has declined significantly in two groups: hedge funds and commercial traders holding long positions in bitcoin. The absence of these long players from the BTC market has zapped the dynamism of futures activity. The groups that have seen a sharp increase in the number of market players are hedge funds selling bitcoin (+10 companies) and asset managers buying BTC (+4 companies).

A key point to remember here is that the trading traders we talked about earlier who are strengthening bitcoin futures positions are relatively few in number, around 10 companies, and a respectable number of them have pulled out of holding. bitcoin. While this exit may have been due to the change in fortunes for bitcoin, it could also be associated with how publicly traded companies are required to account for crypto holdings on their balance sheets, i.e., as the ‘MicroStrategy CEO Michael Saylor will probably attest, this is no walk in the park.

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