The Chicago Mercantile Exchange (CME) has always been the go-to platform for traditional finance investors looking to enter the cryptocurrency market, and this is unlikely to change even with the introduction of a Bitcoin spot ETF. Over the past year, activity on the CME has experienced significant growth, with more Bitcoin futures trading taking place on the CME than on Binance, the world’s largest crypto exchange. In fact, the CME now accounts for 24.7% of the entire Bitcoin futures market, solidifying its position as the leading Bitcoin futures trading venue globally.
While some of this increased activity can be attributed to the anticipation of spot ETF approval, the launch of one or more spot ETFs will not lead to a decline in futures trading. On the contrary, futures trading is expected to expand further once the SEC grants approval to BlackRock and other institutional investors.
It is undeniable that a spot ETF will attract a large influx of institutional money into the cryptocurrency sector. However, it will not alter the fundamental nature of Bitcoin liquidity. As we know, the supply of Bitcoin is limited to 21 million, meaning that the futures market remains the only place where real trading activity can occur.
The CME has already been successfully utilized by renowned financial institutions such as Goldman Sachs, Morgan Stanley, and JP Morgan for cryptocurrency trading, primarily through futures. Futures contracts continue to be the preferred instrument due to liquidity concerns in the spot market. These institutional investors have the ability to purchase Bitcoin at any time, but the lack of liquidity remains a significant hurdle, not the absence of a spot ETF.
Furthermore, institutional investors who utilize the CME are highly sophisticated and will likely seek to hedge their positions in spot ETFs using CME futures. Consequently, we can expect activity on the CME to grow in conjunction with the expansion of spot ETFs.
Futures, as we know, are speculative instruments, and the cryptocurrency market is arguably one of the most speculative markets. As the asset class gains more legitimacy and credibility through the approval of a spot ETF, we can anticipate a surge in investor interest across all areas of digital asset trading. Adventurous day traders who previously focused on the foreign exchange market may start exploring Bitcoin and other crypto instruments, with the CME serving as their preferred platform. In the coming year, we may witness a rise in interest in perpetual swaps and other derivative instruments within the sector.
Another crucial factor contributing to the success of crypto futures is the presence of clearer and more consistent regulation. While the Commodity Futures Trading Commission (CFTC) oversees futures, there is still uncertainty regarding the regulatory oversight of the crypto spot market. This regulatory opacity has hindered the growth of the spot market. Although applications for Bitcoin spot ETFs are currently awaiting approval from the Securities and Exchange Commission (SEC), Chairman Gary Gensler’s ambiguity has become apparent.
While the approval of a spot ETF is imminent, the timeframe remains uncertain. In the meantime, the futures market continues to be an attractive trading ground for institutional investors, as it benefits from clear regulation and offers ample opportunities for speculation.
Lucas Kiely, Chief Investment Officer for Yield App, oversees investment portfolio allocations and drives the expansion of a diversified investment product range. With previous experience as Chief Investment Officer at Diginex Asset Management and a senior trader and managing director at Credit Suisse in Hong Kong, where he managed QIS and Structured Derivatives trading, as well as the head of exotic derivatives at UBS in Australia, Kiely brings a wealth of expertise to the field.
This article serves as general information and should not be construed as legal or investment advice. The opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.