TwitterTweet on Twitter FacebookShare on Facebook Google+Google+ PinterestPinterest

CME Bitcoin (BTC) futures and options markets expired on May 29, and despite a $100 hiccup, the price of the largest digital asset on CoinMarketCap held up nicely around the $9,400 level.

As the market entered this last trading session, open interest for CME Bitcoin futures expiring in May was rather small at $30 million. This does not mean institutional traders abandoned Bitcoin markets, as open interest for upcoming months remains at a healthy $400 million level.

Another essential gauge of institutional investors’ appetite, CME Bitcoin options markets, traded $120 million worth of $11,000 and $13,000 call options for the June and July expiries. This is demonstrably bullish, and most likely a ‘Bull Call Spread’ strategy where one would simultaneously buy the $11,000 call option and sell the $13,000 one.

CME options open interest amounts to $230 million, and these bullish trades are very much in line with the previous month’s report, which saw a 1000% increase in CME options market activity.

Futures data points to bullish sentiment

One issue worth noting is the open interest data provided by CME has a two-day lag. LedgerX, another regulated venue, also lacks real-time reporting on this crucial data. For traders who rely on updated numbers, Deribit and OKEx provide a workaround to the data void.

June 26 Bitcoin Options Open Interest (BTC). Source: Deribit

There’s a healthy 15,500 Bitcoin call options up to $13,000 strike for June, along with 11,500 for other strikes up to July. This amounts to $255 million, which should be compared to put options (bearish) open interest down to $6,500 strike. Currently, Deribit put options up to July totals $160 million, resulting in a 39% put/call ratio.

Such analysis might differ from Skew analytics as we are only taking into account call options up to $13,000 and put options down to $6,500 strikes. Focusing on the more critical strike levels reduces noise and renders a better view of investors optimism through derivatives instruments.

Contango: the primary indicator for uncovering bullish price action

Besides CME futures open interest and the options markets put/call ratio, contango is the most crucial gauge for professional investors’ excitement.

Listed BTC Futures/Perpetual Swaps. Source: Skew

Listed BTC Futures/Perpetual Swaps. Source: Skew

The chart above shows how a standard futures curve should behave. Longer expiry dates tend to trade at higher prices, therefore signaling sellers are demanding more money to postpone settlement.

This situation is called contango, meaning futures costing more than the spot price. A steep contango indicates sellers are demanding even more money in the future; hence it’s a bullish indicator. The current 0.8% premium for July expiry sounds reasonable and healthy, which is slightly positive.

The opposite holds whenever futures are trading below the spot price in a situation called backwardation. Although there are many reasons this could occur, most of the time, it’s an indicator of bearish sentiment.

Looking forward

Grayscale Bitcoin Trust, or GBTC, an exchange-traded vehicle backed with BTC, has also been accumulating Bitcoin at a rate equivalent to 150% of the new coins generated by miners since the May 11 block reward halving. According to Grayscale’s 1Q report, 90% of such inflow came from institutional investors.

Each of these indicators should be closely monitored, but as of now, there are few signs of weakness from institutional investors’ flow.

You May Also Like