The open interest in Bitcoin futures is rapidly approaching an all-time high, with a current value of approximately 478k BTC ($31.8 billion). This surge in activity has been driven primarily by institutional participation on the Chicago Mercantile Exchange (CME).
Cash-Margined Futures Reach All-Time High
Open interest in cash-margined futures has reached an astonishing high of 384k BTC ($25.5 billion), surpassing the November 2022 peak of 376k BTC. During this time, Bitcoin traded near $16,000. This significant milestone is a testament to the growing popularity of cash-margined Bitcoin (BTC) futures contracts.
Institutional Activity on the Rise
The CME’s leadership in the cash-margined segment suggests increasing institutional activity in the derivatives market. Sophisticated investors may be using CME futures to hedge their directional plays or set up market-neutral basis trades.
Crypto-Margin as a Percentage of Total Open Interest Approaches All-Time Low
Cash-margined bitcoin (BTC) futures contracts are more popular than ever, with crypto-margin accounting for just 18.2% of the total open interest of 478k BTC. This indicates a steady decline in crypto-margin over the last two years, while cash-margined open interest has been steadily increasing.
What is Open Interest?
Open interest (OI) refers to the number of active or open futures contracts at a given time. An uptick in open interest is said to represent an inflow of money and preference for leveraged products. It can be measured in native token terms and notional terms, with the latter being influenced by the underlying asset’s price and potentially misleading.
Cash vs Crypto Margin
Glassnode defines crypto-margin as "the total amount of futures contracts open interest that is margined in the native coin (e.g., BTC) and not in USD or stablecoin." In contrast, cash-margin refers to "the total amount of futures contracts open interest that is margined in USD or USD-pegged stablecoins. Stablecoins include USDT and BUSD."
Cash-Margined Contracts Breed Less Volatility
In cash-margined contracts, the underlying collateral being used is stablecoins and/or dollars, which are more stable than tokens used as margin in crypto-collateralized futures. As a result, cash-margined contracts are relatively less vulnerable to forced liquidations and breed less volatility.
The Rise of Cash-Margined Contracts
Cash-margined open interest has been steadily increasing over the last two years, while open interest in crypto-margined has steadily declined from 210k BTC to 87k BTC. This trend suggests that investors are increasingly opting for cash-margined contracts due to their relatively lower volatility.
CME vs Binance Futures OI
The CME’s leadership in the cash-margined segment is a testament to its growing popularity among institutional investors. In October 2023, the CME became the largest futures exchange for the first time, capturing over 30% of the market share and overtaking Binance.
Possible Drivers Behind the Rise of Cash-Margined Contracts
The increase in cash-margined open interest may be driven by various factors, including:
- Institutional activity: The growing participation of institutional investors on the CME is likely contributing to the surge in cash-margined open interest.
- Stablecoin adoption: The increasing use of stablecoins as collateral for futures contracts may be reducing volatility and making cash-margined contracts more attractive to investors.
- Market expectations: The expected debut of U.S.-based spot ETFs may have driven traders to price in the potential impact on the market, leading to an increase in cash-margined open interest.
Conclusion
The surge in cash-margined open interest is a significant development in the Bitcoin derivatives market. As investors continue to opt for relatively lower volatility and more sustainable bull runs, it will be interesting to see how this trend unfolds in 2025 and beyond.
