- The popularity of Bitcoin’s financial derivatives on the Chicago Mercantile Exchange (CME) has led to a new all-time high in open interest for the cryptocurrency.
- 23,000 BTC in futures contracts and 10,000 BTC in options will expire on Friday at the CME, indicating a possible negative effect on Bitcoin’s price.
According to data analysis firm Skew, Bitcoin-based financial derivatives have seen an increase in popularity over the past month. In the same period, Bitcoin has recovered from the bear market caused by the emergence of the pandemic (Covid-19). However, BTC has seen an increase in its volatility recently, after being rejected several times before passing the important $10,000 mark.
At the time of publication, Bitcoin is priced at $9,147 with gains of 2.63% in the last 24 hours. In the weekly chart, it presents the second highest losses of the top 10 cryptocurrencies with 6.63%, surpassed by Bitcoin SV. However, in the monthly chart Bitcoin is the only cryptocurrency with double-digit gains with 18.59%, followed by Ethereum with 4.46%.
Implications of contract expiration for Bitcoin price
Although Bitcoin has managed to break the deadlock and pass the $9,000 mark, the trend in the short term may still be bearish. On Friday, May 29, the expiration of Bitcoin-based financial derivative contracts at the CME could increase volatility in BTC price. As can be seen in the image below, in the last 30 days there has been an increase in the daily volume of open interest for Bitcoin futures at the CME reaching an all-time high of $914 million with an average of $382 million.
In addition, as Bitcoin-based derivatives gain more popularity among CME traders, there has been an increase in the total open interest for Bitcoin options and futures setting new all-time highs. The total open interest for Bitcoin futures reached an all-time high of $532 million, as shown below.
On the other hand, the total open interest for Bitcoin options on the CME has been rising and is the second most important with an all-time high of $175 million. However, it is still far below Deribit which reached $1 billion in open interest for BTC options, as can be seen in the image below.
According to Skew, 23,0000 BTC in futures contracts and 10,000 BTC in options will expire on the aforementioned date. This represents approximately 50% of the open interest for each product. As the expiration date approaches, traders will “roll over” their contracts. That is, they will sell their contracts before their expiration date to buy others with a later expiration date and be able to hold their positions.
However, the exchange on these contracts could have a negative effect on BTC price due to a temporary increase in its selling pressure. The effect of these “roll overs” is expected to be short due to the fact that the CME’s share of the crypto market is still small.
Approx 50% of open interest for each product
Watch the rolls! pic.twitter.com/r3niIa1BnY
— skew (@skewdotcom) May 26, 2020