Existing Bitcoin Exchange Dwarfs Institutional Volume: Are CME and Bakkt Overhyped?

Despite successful shows of force from CME Group and Bakkt’s Bitcoin options offerings, the majority of volume still goes through Deribit.

This squashes fears that the new offerings would be in direct competition with the European firm, and highlights the fact that non-institutional investors seem to prefer unregulated exchanges.

CME Group’s Launch

CME successfully launched Bitcoin options trading on its derivatives exchange earlier this week; offerings like these permit investors to hedge or speculate on the price of the leading cryptocurrency.

Rival platform Bakkt, which is owned by the Intercontinental Exchange (ICE), released its own options and cash-settled contracts in early-December, 2019.

On the first trading day, January 13, more Bitcoin options contracts were traded on CME than Bakkt: CME traded 55 contracts with around $2.1 million worth of Bitcoin, while its competitor only saw around $1.15 million in option trading volumes. 

The successful launch of Bitcoin options at CME reflects the increasing interest in Bitcoin derivatives — as highlighted in data from Skew — across the board.

Deribit Takes the Cake

Last week, daily Bitcoin option volume rose to over $90 million, and this week saw that figure reach almost $150 million.

Despite the success of CME and Bakkt, when compared with these competitors Deribit is by far the most popular choice — accounting for over 80% of total volume.

In 2019 — when there was less competition — approximately 95% of all trades took place on the Dutch-based exchange, which announced Thursday it was moving its operations to Panama citing regulatory concerns.

These numbers highlight the fact that non-institutional Bitcoin traders still seem to prefer unregulated exchanges like Deribit over regulated ones like CME and Bakkt. That said, institutional interest is certainly still on the rise.

Further, not all competition is bad. As pointed out on Twitter by @jgreco, “sometimes additional competition will drive more volume.”

He goes on to remind us that these separate venues — CME, Bakkt, and Deribit — all contribute to the Bitcoin ecosystem as a whole, and this creates a “rising tide that lifts all boats.”

Futures Market Brings Legitimacy to Bitcoin

Heath Tarbert, Chairman of the U.S. Commodity Futures Trading Commission (CFTC), recently discussed Bitcoin futures in an interview with Cheddar.

According to Tarbert, the Bitcoin futures market provides reliably:

“By allowing them to come into the world of the CFTC, we’re allowing the futures market to develop based on these products and in that way, when people are interested in purchasing a particular digital asset of the two, Bitcoin or Ether, they can rely on the futures market.”

The Chairman also explained that the Bitcoin futures market helps in pricing, hedging, and risk management, adding that he believes it helps to legitimize and increase the liquidity of these markets.

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