Getting Ready for Bitcoin’s Catalysts

The
price
of
bitcoin,
the
world’s
largest
cryptocurrency
by
market
cap,
began
climbing
during
the
week
of
October
23
after
spending
much
of
the
summer
stuck
around
$26,000.
It
recently
rose
above
$35,000
to
touch
its
highest
level
since
May
2022.

This
post
is
part
of
Consensus
Magazine’s



Trading
Week
2023,
presented
by
CME.

Why
is
bitcoin
appreciating?

Some
point
to
signs
that
a
slate
of
exchange-traded
funds
that
hold
actual
bitcoin
—
known
as
spot
bitcoin
ETFs
—
may
soon
be
approved
by
U.S.
regulators.
Such
approval
(if
granted)
will
provide
investors
with
additional
products
to
access
bitcoin
exposure
and
may
attract
participants
who
may
have
been
sitting
on
the
side-lines
.

The
approval
of
the
futures-based
ProShares
Bitcoin
Strategy
ETF
(BITO)
made
history
in
October
2021
as
one
of
the
strongest-ever
ETF
launches,
amassing
more
than
$1bn
in
assets
in
just
two
days,
and
continuing
to
attract
interest.

Another
popular
theory
is
tied
to
bitcoin’s
upcoming
“halving.”
This
pre-programmed
adjustment
to
the
blockchain
cuts
in
half
the
reward
miners
receive
for
processing
transactions
and
creating
new
bitcoin
from
the
current
6.25
to
3.125
bitcoin
per
block.
This
event
occurs
after
210k
blocks
are
mined
or
about
every
four
years
until
the
maximum
supply
(21MM)
is
reached.
The
next
halving,
Bitcoin’s
fourth,
is
expected
to
happen
by
mid-April
2024.

In
the
past,
this
event
and
the
associated
supply
reduction
has
coincided
with
a
strong
run-up
in
bitcoin’s
price
and
could
potentially
lead
to
pre-
and
post-halving
volatility.
The
geopolitical
and
macro
backdrop
for
the
upcoming
halving
is
very
different
from
previous
ones
and
the
availability
of
regulated,
robust
and
liquid

Bitcoin
futures
and
options
from
CME
Group
means
firms
have
trusted
and
tested
products
to
hedge
their
bitcoin
price
risk
or
gain
exposure.

Investors
who
trade
in
the
futures
market
usually
have
one
of
two
aims:
to
either
hedge
the
price
of
an
asset
by
locking
in
a
future
price
or
to
speculate
on
the
price
direction
of
an
asset
to
seek
to
profit
from
the
ups
and
downs
of
futures
prices.

CME
Group
Bitcoin
and

Micro
Bitcoin
and
futures
and
options
can
help
investors
navigate
cryptocurrency
market
risks
and
potentially
profit
from
its
opportunities.
Micro
Bitcoin
futures
traded
volume
has
doubled
from
5,9000
contracts
in
September
2023
to
11,9000
contracts
traded
in
October
2023
while
Bitcoin
futures
witnessed
a
38%
increase
in
daily
volume
to
13,300
contracts
over
the
same
period.

Cryptocurrency
futures
bring
three
main
advantages
for
investors.

1.
The
contract
is
cash-settled
in
USD.
There
is
no
need
to
custody
the
coin,
which
removes
the
risk
of
having
to
safely
store
it.
That
means
you
don’t
need
to
have
a
wallet,
worry
about
hackings,
or
insurance.
The

futures
simply
track
the
price
of
bitcoin
or
ether,
and
settle
in
USD,
so,
by
trading
cryptocurrency
futures
instead
of
the
coins
themselves,
investors
can
bypass
several
operational
hurdles.

2.
They
are
CFTC-regulated
contracts.
That
means
they
offer
several
customer
protections.
For
example,
your
funds
are
fully
segregated
and
each
trade
is
centrally
cleared.
CME
Group’s
clearing
house
becomes
the
buyer
to
every
seller
and
the
seller
to
every
buyer.
This
substantially
mitigates
counterparty
risk
from
the
trade.

3.
Futures
make
it
easier
for
investors
to
short.
No
“locate”
or
borrow
is
necessary,
just
simply
sell
to
gain
short
exposure.
Bitcoin
and
ether
are
no
strangers
to
volatility.
While
some
investors
might
embrace
that,
others
are
far
more
risk-averse.
Selling
futures
contracts
could
well
play
a
part
in
their
strategy.
Investors
who
like
more
risk
can
sell
(short)
futures
to
try
and
profit
from
bitcoin
or
ether’s
downside
moves.
Other
investors,
meanwhile,
can
sell
(short)
futures
to
hedge
the
bitcoin
or
ether
they
already
own.
This
way,
they
can
offset
some
losses
if
their
crypto
portfolio
takes
a
dive.

Moreover

futures
offer
investors
more
precision
to
fine
tune
exposure
and
allow
them
to
control
a
large
contract
value
with
a
smaller
amount
of
capital.
One
Micro
Bitcoin
futures
contract
(ticker:
MBT)
is
set
to
one-tenth
of
a
bitcoin,
which
is
50
times
smaller
than
a
full-sized
contract
(ticker:
BTC).
One
Micro
Ether
futures
contract
(ticker:
MET)
is
one-tenth
of
an
ether,
which
is
500
times
smaller
than
its
full-sized
counterpart
(ticker:
ETH).
The
notional
size
for
MBT
is
about
$3,500
while
for
MET,
it
is
about
$200
(at
current
market
prices).

If
you
are
buying
bitcoin
or
ether
on
a
spot
exchange,
you
will
need
to
fully
fund
the
position
before
you
trade.
An
advantage
with
futures
is
that
you
only
need
to
put
down
the
initial
margin
requirement,
or
the
amount
of
money
you
need
as
collateral
to
open
your
trade.

Institutional
interest
in
Bitcoin
futures
has
steadily
climbed.
Open
interest,
a
measure
of
client
demand,
hit
an
all-time
high
of
20,380
contracts
on
October
25,
equivalent
to
101,900
bitcoin,
representing
$3.5
billion
in
notional
value.
Similarly,
the
number
of
large
open
interest
holders
(LOIH)
of
CME
Group’s
Bitcoin
futures
grew
to
a
record
122
on
October
24
(LOIH
for
Cryptocurrency
futures
is
defined
by
the
CFTC
as
an
entity
that
holds
at
least
25
contracts).

This
is
further
proof
that
institutional
investors
are
warming
up
to
bitcoin
and
positioning
their
portfolios
amid
renewed
optimism.
Retail
investors,
too,
seem
to
have
played
their
part,
as
evidenced
by
the
uptick
in 
futures-based
ETF’s
AUM.
The
rolling
five-day
volume
in
ProShares’

industry-leading
Bitcoin
Strategy
ETF
(BITO)
jumped
by
a
staggering
420%
to
$340
million
last
week.
BITO
invests
in
CME
Group
Bitcoin
futures.

CME
Group
futures
are
not
suitable
for
all
investors
and
involve
the
risk
of
loss.



Full
disclaimer.
Copyright
©
2023
CME
Group
Inc.