Cryptocurrency Derivatives Series: Quick Check of Volumes and Open Interest on CME, BitMEX and Binance Bitcoin Futures

We emphasized the coincidence of the summer peaks in the bitcoin prices with overbought conditions and record volumes in CME futures contracts a couple of months ago. Below weblink is the reference to our recent write-up:

https://www.google.com/search?client=safari&rls=en&q=Digital+Currency+Revolution+Series:+BTC+Tumbles+To+$11k,+Healthy+Corrections+For+Smooth+Liquidity+And+Mega+Bullish+Journey%3F&ie=UTF-8&oe=UTF-8

As you can observe the above nutshell evidencing CME’s bitcoin futures trading volumes and open interests along with the underlying price of BTCUSD that is trading a shy above $7,825 levels, rising volumes and dipping open interests. 

Front-end month contracts shows volumes of 1,994 lots and open interests of 2180 with change in -108.

For now, the puzzling question is that “has an unwind of these positions contributed to the recent declines? To infer positioning in bitcoin futures we use our open interest position proxy methodology, previously applied to other futures contracts, where we look at the cumulative weekly absolute changes in the open interest multiplied by the sign of the futures price change every week. The rationale behind this position proxy is that when there is a price increase, the net long position of spec investors’ increases also with the magnitude of the increase determined by the absolute change in the open interest. It does not matter whether the open interest rises or falls as the net long position can increase either via fresh longs (increase in open interest) or a reduction of previous shorts (reduction in open interest). And vice versa. When there is a price decrease, the net long position of spec investors decreases also with the magnitude of the decrease determined by the absolute change in the open interest. It does not matter whether the open interest rises or falls as the net long position can decrease either via fresh shorts (increase in open interest) or reduction of previous longs (reduction in open interest).

We refer to the JPM’s position proxies for the CME and BitMEX futures contacts are shown in 3rd chart. The CME position proxy suggests the long base has declined markedly since their peak during the summer, and some further reduction this week. By contrast, the BitMEX position proxy suggests a more marked capitulation of bitcoin longs over the past week. This position liquidation has also likely contributed to the sharp falls in bitcoin prices this week. But while the previous overhang of long bitcoin futures positions appears to have cleared in BitMEX futures, this is not yet true for CME contracts.

Finally, Binance’s Bitcoin Futures platform is observed to have made incredible gains within the first few days of its launching. In fact, the platform has outperformed the Binance.com spot market in terms of BTC trading volume within the last 24 hours. The 24-hour trading volume of Binance’s futures markets was seen to have crossed 30,500 BTC. Denominated in USDT, the equivalent of this would come to over $250 MM. Further, the figures were also said to have exceeded those of Binance spot trading which recorded a relatively lower 24-hour trading volume of 219,868,241 million denominated in USDT.

Most importantly, another recent development is that the CME has announced that it will launch options on its bitcoin futures in the first quarter of 2020. While the listing is subject to regulatory review, the contract would be a welcome development in that it expands the alternatives for investors to manage risk.