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The cryptocurrency market is off to a good start in 2023, with major cryptocurrencies up over 30% YTD. Increased institutional participation underpins this strong performance, as Bitcoin CME futures open interest surged to 21% of his, near all-time highs.
Participation by institutional investors, which is said to have ended with the bankruptcy of the virtual currency exchange FTX in November last year, has been on a downward trend for 10 months, but has since revived.
Institutional investors get returns
Chicago Mercantile Exchange (CME) Group is one of the world’s largest derivatives exchanges, offering futures and options trading services in industry segments such as stock market indices, currencies, real estate, commodities and cryptocurrencies. In general, the increase in crypto-related trading volume on platforms suggests an influx of institutional investors into the digital asset space.
Interestingly, data from Arcane Research shows that cryptocurrency’s strong rally this year was fueled by increased institutional participation in BTC futures. Total open interest in BTC futures currently stands at 21% at CME. This was only twice higher when the first Bitcoin-linked ETF launched in October 2021, and in late December 2021.
Crypto-related trading volumes on the CME saw a brief uptick last November following the collapse of FTX. At that time, institutional investors started shorting bitcoin to take advantage of the crypto carnage. However, trading volume for cryptocurrency derivatives dropped sharply by the last month of 2022.
As Bitcoin rebounded earlier this year, CME open interest also started to gain momentum. According to Arcane, investors bought his GBTC at a steep discount after Genesis revealed that Gemini had sold 30.9 million shares of his GBTC shares during bankruptcy filing, and the CME The surge occurred because we started hedging through futures. The report states:
“Meanwhile, the CME January push was accompanied by a strong market. BTC is up 36% this month. And active participation, defined as non-ETF activity, is behind the recent surge.”
Bitcoin open interest is the value of all open BTC derivatives positions, down 255,000 BTC over the last three months. “The fall in FTX explains some of the fall in OI in the offshore market, but we see open interest trending significantly,” said Arcane.
As reported, Bitcoin open interest has fallen by more than 25% this year. Similarly, total offshore open interest is down 18.6% from November, excluding FTX data. However, this is in stark contrast to his CME open interest, which has increased 23.6% since the FTX drop. Arcane said:
“Different pathways were particularly pronounced in early January as offshore OI dropped significantly following a few short squeezes, but CME maintained solid growth unencumbered by similar dynamics.”
CME Futures Get Blown By Crypto Winter
Crypto trading volumes at CME plummeted last year amid a harsh crypto winter that saw nearly $2 trillion worth of value evaporate from the crypto markets. Nearly all major cryptocurrencies, including Bitcoin and Ethereum, have lost more than 70% of their value compared to all-time highs.
According to CryptoCompare, CME crypto derivatives trading volume fell 49.2% to $14.2 billion in December 2022, the lowest level since October 2020. The report states:
“Options trading on exchanges also dropped significantly in December, with BTC options trading volume down 57.4% to $225 million, the lowest since July 2021. ETH options on CME Trading volume also fell 41.5% to $2 million, marking the lowest trading volume in its history. ”
The decline in derivatives trading volume was in line with lower spot trading volumes across the industry, particularly on centralized exchanges. In the final month of 2022, total spot trading volume fell 48.4% to $544 billion, the lowest number since December 2019.
Overall, the cumulative trading volume of centralized exchanges fell by 46.2% in 2022, said another report from CryptoCompare. The report cites falling cryptocurrency prices and lower volatility as the main factors affecting the decline in trading volumes.
Meanwhile, cryptocurrency prices have flattened out over the past few days following a weekend rally. Bitcoin is trading around $22,600 and has been largely flat for the past day. Ethereum, on the other hand, has dropped more than 4% to around $1,500.
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This article originally appeared on The Tokenist. Check out The Tokenist’s free newsletter. Five Minutes Financea weekly analysis of the biggest trends in finance and technology.
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