• Bitcoin ETFs and CME Futures are the big winners in terms of retail investor inflows

  • Investors poured $1,465 million into the top crypto funds, according to CoinShares, with ProShares capturing $1,237 million of the total, $1.45 billion of which went into bitcoin funds. Separately, according to the latest Commodity Futures Trading Commission (CFTC) weekly data released on Sunday, the number of bitcoin futures retail investors hold at the Chicago-based CME Group CME -0.3 percent as “open interest” – capital tied up in futures contracts – increased 95 percent from 2,631 to an all-time high of 5,136.

    With each of those contracts worth the equivalent of five bitcoins – or about $321,300 as of Tuesday’s close – retail investors’ net capital inflow into these contracts increased by $183 million. The value of the CME’s crypto futures contracts increased by $1.58 billion (+38 percent) across all trader groups. $1.31 billion of that total went to bitcoin futures, with the remaining $270 million going to CME ether futures and CME micro-bitcoin futures. Furthermore, CME crypto futures trading volume peaked at more than $9.2 billion on Thursday, making the CME one of, if not the, largest derivatives exchange by volume that day.

    When compared to the beginning of the year, the futures market reflects increased exposure by commercial traders, which include corporations and bitcoin ETF issuers such as ProShares, as well as retail traders. With a large increase in OI in spread, an entity is both buying and selling that number of contracts – that is, they are’making markets’ through what is known as the carry trade: buying the commodity in the spot or cash market and selling it on the futures market. US banks and even a small portion of retail traders have increased their share selling interest since the beginning of the year, while hedge funds have sharply reduced their long bitcoin positions at the CME.

    While the CFTC’s Sunday data release covers activity through Tuesday, October 19, the latest CME data through Friday, October 22 shows that OI increased by 3,515 contracts over Tuesday’s total – another record high. The CFTC data for next week will reveal which type of trader group captured the lion’s share of that OI increase, but it is safe to assume that commercial traders increased their long positions significantly and that hedge funds participated in at least 60% of all sell positions.

    Analysis

    The most important takeaway is that the BITO launch prompted retail investors to act opportunistically. Their share of CME BTC futures holdings had been on a seven-month decline, but the BITO launch last week triggered a record-breaking demand U-turn for CME futures. The retail-driven increase in CME BTC OI is in addition to the roughly 4,000 long BTC contracts that commercial firms have snatched up in recent weeks.

    Why the sudden shift? Investors familiar with CME bitcoin futures understand that the BITO ETF launch opens the door for more crypto ETF issuance. This means that not only will there be demand for bitcoin exposure, but also for CME bitcoin futures contracts. In some ways, the retail investors and institutions who participated in last week’s rally simply bought a hot commodity knowing that there will be many more buyers – for example, new ETF issuers – bidding up the price of that commodity.

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