Demand from institutional investors drives up bitcoin futures trading volumes on CME

CME Group says they have seen “tremendous interest” from Asian investors

PUBLISHED : Tuesday, 10 April, 2018, 7:30pm
UPDATED : Wednesday, 11 April, 2018, 11:26am

Demand from global institutional investors has lifted trading volumes on the CME by more than 50 per cent since CME Group launched its first bitcoin futures product in December, with Asian investors showing “tremendous interest” in the new asset class, according to a top executive.

CME Group, the operator of the world’s largest futures exchange, launched its bitcoin futures product on December 18, 2017. Last year, the total value of the crytocurrency market surged more than 30 fold. It followed a similar move by smaller rival Cboe Global Markets a week earlier, a sign that many analysts regard as the beginning of the young digital currency being absorbed into the mainstream financial system.

Tim McCourt, managing director and global head of equity products and alternative investments at CME Group, said trading in the group’s bitcoin futures product has become increasingly active, indicating that the demand has been rising.

“It [trading volume] is steadily increasing each month,” he said during an interview in Hong Kong on Monday.

According to the CME Group, in December the average daily trading volume was about 1,600 contracts. In March, that tally jumped to 2,500 contracts, an increase of 56 per cent in less than four months.

About 30 per cent of the volume was from outside the US, with Asia accounting for a big chunk. In February, over 400 futures contracts, the equivalent of 2,000 bitcoin were traded per day during Asian trading hours, from 8am to 8pm Hong Kong time.

Although not all investors are from Asia during these hours, the demand from this region still holds up.

“We’ve seen tremendous interest from the Asian [investor] community,” said McCourt.

A CME bitcoin futures contract represents five bitcoin, while its rival Cboe contract represents one bitcoin.

But the digital currency has also displayed incredible volatility, as bitcoin prices have plunged more than 50 per cent since the beginning of 2018.

“Investors need to manage their risks,” McCourt said when asked if volatility had induced more trading.

There are currently three types of investors in the market – hedgers who have inventories of bitcoin, speculators who want to gain from playing short-term price swings, and hedge fund and asset managers who want exposure to the new asset class and allocate to alternative investments.

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McCourt said he had also noticed increasing interest from institutional investors looking to get into the market.

As cryptocurrencies attract increased regulatory oversight across the globe, McCourt said a regulated and mature market will actually encourage more mainstream investors to come into the space.

“More regulation will increase efficiency of the market and give investors confidence.”

He added the priority for the group in the crypto market was to “build a better ecosystem” for investors to trade bitcoin products “more efficiently”.

CME’s bitcoin futures can be traded on the CME Globex electronic trading platform.