Why Is Open Interest Surging Across Cryptocurrency Futures and Options?

To say that 2022 has been a turbulent year for the cryptocurrency market would be an understatement. 

Bitcoin’s value has remained significantly below its all-time high of $68,789.63, which it reached in November 2021. Bitcoin (BTC) has struggled to sustain a significant position over $20,000 in recent months. It even fell below that level for much of late September and early October 2022, having rebounded from a 19-month low of $17,708.62 in June.

Source: Coindesk

Ethereum (ETH) completed its long-awaited transition to a proof-of-stake consensus mechanism on September 15th, with the closely watched “Ethereum Merge” event. It was, however, far from the bullish catalyst that ETH investors had hoped for.

The product and pricing comparison website Finder.com recently suggested that ETH may potentially surge to $5,154 by 2025. ETH is now trading at about $1,568.92. Having said that, they did warn that ETH could hit new lows in the near term.

Source: Coindesk

Earlier this summer, crypto hedge fund Three Arrows Capital (3AC) was forced to liquidate after failing to pay margin calls from its lenders. This followed the failure of the Terra blockchain project in May, when the TerraUSD stable coin crashed.

Needless to say, investing in crypto assets can involve a substantial amount of risk. The cryptocurrency market is particularly vulnerable to price swings due to its relative small size and reliance on speculation. 

They can, however, be a smart investment if done properly as a part of a balanced portfolio. 

CME Group Cryptocurrency Futures and Options

Despite the unsettling headlines, the CME Group’s cryptocurrency product suite has seen sustained volume and a significant increase in Open Interest (OI). Indeed, cryptocurrency futures and options set fresh highs in Q3, indicating substantial institutional interest. 

Institutional investors, also referred to as the “smart money”, are increasingly turning to CME Group Cryptocurrency futures and options. These products allow market participants to manage their bitcoin and ether exposure with greater precision and flexibility. Fortunately, these micro contracts are not exclusive to institutional investors.

Let’s take a closer look at how Micro Cryptocurrency products enable traders of all sizes to access crypto market exposure.

Options on Micro Bitcoin Futures and Micro Ether Futures

The buyer of a call or put on Micro Bitcoin or Micro Ether futures from CME has the option to buy or sell one Micro Cryptocurrency futures contract at a predetermined strike price at some point in the future.

Each in-the-money Micro Bitcoin or Micro Ether option delivers one contract of the underlying future upon the close of trade.

Traders can enjoy some of the following benefits:

• More access, less margin: Enjoy practically round-the-clock access, price discovery, lower counterparty risk, and more thanks to smaller contracts’ lower initial margin. You also get possible cost savings from margin offsets.
• Fine-tune your exposure: Micro contracts can be one-tenth the size of a bitcoin or ether. This allows you to add precision to your trading strategies and incrementally scale positions up or down.
• Trade in a regulated market: The CFTC’s oversight contributes to market integrity by ensuring that all participants see the same contract pricing and quotes on contracts settled to CME CF Reference Rates.

Gain Access to the BTC/ETH Futures Markets

During times of market uncertainty, clients can benefit from the increasing liquidity of CME Group cryptocurrency products.

• Micro Cryptocurrency options:

Micro Bitcoin and Micro Ether options were introduced on March 28. They have 1/10th  proportionate size of their respective coins. There have been over 345K total contracts traded as of October 2022.

These instruments offer investors a low-cost and efficient approach to manage ETH and BTC exposure.

• Ether futures (ETH):

Since its launch in February 2021, ETH has exchanged almost 2.1 million contracts. Take advantage of overnight liquidity, with 43% of trades taking place during non-US trading hours. business hours.

Bitcoin futures (BTC):

BTC Average Daily Volume (ADV) was over 11.7K contracts in Q3 2022 (+8% vs. Q2-22), while open interest was a record 13.7K contracts (+18% vs. Q2-22).  36% of volume is traded outside of North America.

• Bitcoin Euro and Ether Euro futures: 

These contracts provide access to traders on euro-denominated cryptocurrencies, which are the second highest-traded fiat behind USD. 

How Open Interest Can Improve Your Trading Strategy

The term “open interest” refers to the number of open contracts for a given futures or option. Whereas volume indicates how actively a market is traded, open interest indicates whether a certain market is going higher or lower.

When open interest increases, it is typically a sign that a trend is gaining traction. Conversely, a drop in open interest is generally an indication that the trend is beginning to wane. The bigger the fluctuation in open interest, the more credible the indication of the direction of a trend.

Source: CME Group

CME Group Cryptocurrency Products Reached New Records In Q3

Here are some of the major records set by the CME Group’s Futures and Options trading platform in the third quarter of 2022:

• The average daily OI across all crypto products reached a record 174,537 contracts in Q3 2022, beating Q2 by more than 64%.
• The average daily OI for Bitcoin futures hit 13,693 contracts (+18% vs. Q2-22).
• The average daily volume (ADV) for Ether futures in Q3 2022 reached a record 7,247 contracts (+10% vs. Q2-22), while Micro Ether futures recorded a record ADV of 22,145 contracts and average daily OI of 50,369 contracts.
• Micro Bitcoin options had a quarterly ADV of 624 contracts, with an average daily OI of 6,531 contracts. Micro Ether options had a record 74,841 contracts.
• The combined Large Open Interest Holders (LOIH) of CME Group Cryptocurrency Futures hit a record 411 the week of July 5.

Futures and Options Trading with Tradeview Markets

Interested in trading futures and options? Tradeview’s futures trading platform offers customers Direct Market Access (DMA) to global Exchange-Listed Futures & Options markets. As a client, it means you get access to a full suite of Commodity Futures & Options at competitive rates.

Try Tradeview Markets by opening a Free DEMO account or get started trading by opening an active account. 

Also be sure to check out our online trading room, TradeGATE Hub. The GATE, or the Global Active Trading Environment, is where you can follow and interact with professional traders from all over the world who have over 100 years of combined trading experience.