As the crypto industry spiraled from the fallout of FTX and regulators began closing in, one corner of the sprawling market saw an influx of demand from institutional investors: listed futures trading.
(Bloomberg) — As the crypto industry spiraled from the fallout of FTX and regulators began closing in, one corner of the sprawling market saw an influx of demand from institutional investors: listed futures trading.
CME Group Inc.’s average daily trading volume in its crypto futures products rose a record 13% in 2022 to 53,600 contracts. Every crypto collapse, arrest and regulator probe since the FTX scandal has continued to feed that demand.
“Our robust, price-discovery product is reinforced in times of stress,” Tim McCourt, global head of equity and FX products at CME, said in an interview. “People want to trade on a regulated venue, a trusted exchange where they know the rules of the road.”
Crypto is under scrutiny as US watchdogs ramp up oversight. The more-aggressive posture could push digital assets back to the fringes of finance, or as many crypto firms argue, offshore entirely.
Owen Lau, analyst at Oppenheimer & Co., said tighter regulation can boost “traditional players” like CME. He called the surge in trading at CME “eye-popping.”
With crypto futures trading, investors can make bets on the price of Bitcoin or Ether. CME, a US-based exchange regulated by the Commodity Futures Trading Commission, saw January average daily volume rise 32% from December — but was still down 41% from a year earlier. The exchange has been offering the crypto futures products since 2017.
The surge in futures trading tracks the recovery of cryptocurrencies after last year’s FTX-induced shock. In November, Bitcoin plunged around 25% as selloffs at FTX led to a widespread plunge in crypto-related assets. Bitcoin has rebounded since then, and is up around 40% this year.
Regulation helped crypto derivatives markets take root in the US, and more oversight “would be a great development for the industry when we get there,” McCourt said.
Derivatives trading in crypto, including options and futures, frequently happens at offshore exchanges such as Binance, OKX and previously FTX. Some offshore exchanges offer popular products like Bitcoin perpetual contracts that allow investors to build leverage. CME said it doesn’t have such products because they aren’t regulated in the US.
Roughly 33% of crypto futures and options trading activity originated outside the US last year, and is trending higher to 35% for 2023, according to CME data. That is likely to push higher and speaks to a more global interest in crypto markets, McCourt said.
CME’s clients include individual traders, hedge funds, asset managers and banks that trade Bitcoin futures and options, as well as Ether futures. In November, CME added 934 new crypto accounts, and more than 700 in January, the firm announced. That’s up from a monthly average of about 450. From 2017 through last month, more than CME has logged more than 27,000 accounts trading crypto.
The exchange is adding crypto offerings. Next month, it plans to expand event contracts, which track the daily price moves of futures markets, to include Bitcoin futures. At around $20 per contract, the daily options on futures allow investors an understanding of their maximum profit or loss when entering a trade.
–With assistance from Isis Almeida.
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