Editors Note: This article comes fromCointelegraph Chinese (ID: CointelegraphChina), Author: ANIRUDH TIWARI, reprinted with authorization by Odaily.
Editors Note: This article comes from
Cointelegraph Chinese (ID: CointelegraphChina)
Cointelegraph Chinese (ID: CointelegraphChina)
The growth of the cryptocurrency derivatives market in 2020 is a story in itself, dominated by Bitcoin (BTC) and Ethereum (ETH) traded on exchanges such as Chicago Mercantile Exchange (CME), Deribit, OKEx, Binance and Huobi. Option driven.
Record Bitcoin options volumes indicate increasing institutional interest in cryptocurrencies, but there are better quantitative and qualitative indicators available, such as open interest, price of Bitcoin, frequency of large trades, institutional Know Your Customer (KYC) process, etc.
The proportion of institutional investors in the overall asset pool is still small compared to traditional derivatives, but it is clear that the apparent rise in investor interest has been driven by financial instruments such as options and futures. Options are not a panacea, but a stage in the development of an asset, and it is obvious that both Bitcoin and Ethereum have reached this stage in their development. Luuk Strijers, chief commercial officer of cryptocurrency derivatives exchange Deribit, expressed similar thoughts in an interview with Cointelegraph, saying, “Institutional investor capital flows into the crypto space are still in their infancy.”
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Trading Volumes Can Mislead Traders
Considering only Bitcoin and Ethereum volumes can be misleading to investors and speculators, as derivatives volumes are often disrupted by bots, wash trading, and false reporting. A better indicator of volume is the amount of Bitcoin moving in and out of derivatives exchanges such as Deribit. This analysis is offered by several companies that extract insights from on-chain data.
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Open Interest: A Better Indicator Than Volume?
Open interest is a better indicator of institutional interest, although the increase in trading volumes points to increased interest in cryptocurrencies from both the public and institutions seeking to hedge against asset volatility amid the COVID-19 pandemic and the looming global financial crisis, Because it indicates buyer interest and is not as flawed as reported volume. A CME spokesperson agreed:
“In the CME Bitcoin futures market, the number of large open interest holders (LOIH), or traders holding 25 or more contracts, grew to an average of 65 in the second quarter of 2020. Compared with the first A quarter-on-quarter increase of 27% is a new record. Large open interest holders are large traders as defined by the CFTC, so this may be another indicator of institutional involvement.”
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Block trades are privately negotiated futures/options contracts that meet certain volume thresholds, usually outside of the public auction market. Since institutional investors and traders typically trade a larger par share, the percentage of large transactions as a percentage of total volume can also serve as an indicator of institutional interest in cryptocurrencies. A CME spokesperson further confirmed this assumption:
Since its launch in January 2020, block trades on CME Bitcoin Options have grown steadily, and in June, block trades accounted for 79% of CME Bitcoin Options volume, compared to 22% in April. Notably, CME Bitcoin Options Coin futures and options have a minimum block trade size of 5 contracts (equivalent to 25 BTC). Therefore, an increase in block trades may indicate increased institutional participation.”
To learn more about the phenomenon of bulk trading between cryptocurrency exchanges, Deribit must be considered as it is the largest platform among these tools. In June, the largest quarterly expiration date to date came, with 115,000 contracts expiring, and Derebit continued to hold 74,000 open contracts. Elaborating further on the correlation of open interest and block trades, Deribit’s Strijers revealed:
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related articles:The price of Bitcoin and its volatility
By the end of the second quarter, Bitcoin’s volatility had subsided significantly, which itself is a favorable signal for institutional participation, as institutions favor stability. In contrast, markets driven by retail investors often experience wild swings. Jay Hao, CEO of OKEx, a Malta-based cryptocurrency exchange, said stability is a sign that “bitcoin is maturing as an asset class,” telling Cointelegraph in an interview:
“When institutional traders became interested in Bitcoin, volatility was a red flag that put many off. However, in today’s environment, we are seeing increased volatility in traditional markets. This may be Another reason traders are starting to see renewed interest looking to diversify their portfolios and eventually see Bitcoin as a viable option to hedge through complex derivatives markets and options trading.”
Notably, the reduction in Bitcoin price volatility alone is not sufficient to draw conclusions about the extent of institutional involvement. John Todaro, head of research at TradeBlock, one of the largest digital currency trading platforms, told Cointelegraph: Bitcoins volatility levels have subsided in the past before resuming wild market volatility, and 2018 saw that. Good year. So just reducing volatility doesn’t mean institutions are involved.”
Bitcoin ETFs
Recently, the price of Bitcoin has shown a correlation with the SP 500 index, which can be considered a representative indicator of the global stock market. Todaro further explained what this means for institutional interest:
“The moderate to high correlation between equities and Bitcoin over the past few months has been a good example of rising institutional interest. Large trading firms tend to push assets in the direction of positive or negative correlation, as That’s what we’ve seen recently between Bitcoin and stocks. In the past, Bitcoin has performed so uncorrelated that it almost suggests a complete disconnect from traditional financial markets.”
Bitcoin ETFs
A Bitcoin exchange-traded fund (ETF) is a derivative product that trades using Bitcoin as its underlying asset (in whole or in part). Once the SEC approves bitcoin ETFs, they are expected to become massive, a watershed moment in bitcoin’s lifecycle as an asset class, and potentially boost retail demand and adoption, as revealed by Todaro: “In my view, a Bitcoin ETF would actually increase retail trading activity because the ETF itself tends to be more retail-oriented, which is an easy opportunity for exposure.”
“Everyone in the crypto space is waiting for a bitcoin ETF approval because that will definitely increase institutional demand because they can get exposure to bitcoin for their clients without having to hold bitcoin or deal with an exchange. They can Great diversification of assets without taking on many of the risks that come with trading and holding Bitcoin.
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giants start to surface
The Grayscale Bitcoin Trust has become a force to be reckoned with, managing a record number of funds and 88% of its investors are institutional. In addition to this, traditional players such as the Big Four accounting firms are entering the cryptocurrency market, and even Western Union is making a bet. This change can also be tracked on platforms such as TradeBlock, Todaro further explained: “As new and existing institutional traders/investment firms expand in the crypto space, we have seen them show considerable interest .”
