Institutional funds pouring into CME Bitcoin futures trading, is it a good thing?

In August, the Chicago Mercantile Exchange (CME) saw Bitcoin futures contracts trading volume surpassing $5 billion. Each contract represents the right, not the obligation, for the user to purchase 5 BTC at a specified price, meaning the platform has traded over 100,000 futures contracts.

From the beginning of the year until now, the trading volume has been quite impressive. Tim McCourt, Managing Director at CME, told Forbes contributor Benjamin Pirus that CME Bitcoin futures have been averaging over 7,000 contracts per day.

This data is significant because retail investors find it challenging to trade futures on CME, so the increase in daily trading volume does not necessarily mean that regular crypto users are participating. On the CME platform, most futures trading comes from institutional investors and qualified high-net-worth individuals, the very audience that Bitcoin users have been hoping to capture.

It is widely believed that the 2017 Bitcoin bubble was driven by retail investors, but for a similar price surge to happen again, a larger pool of capital is needed now. The influx of institutional investors could bring in this capital, so it is crucial for Bitcoin enthusiasts to understand the interests of those with millions or even billions of dollars.

$5 billion is already a substantial amount, but the following context can help everyone better grasp this figure: the daily trading volume of the top ten Bitcoin spot markets is around $1 billion, or approximately $30 billion in monthly trading volume. It is difficult to determine whether spot market volumes on platforms like Binance and Coinbase come from retail or institutional funds, but it is likely that the trading volumes on these two platforms are from retail investors.

The majority of Bitcoin network's daily trading volume comes from retail investment. However, the growth in daily trading volume on the CME platform (which had seen no growth in the first two years) indicates that institutional funds are flowing into Bitcoin. Bakkt is on the horizon, offering Bitcoin futures contracts that could be another catalyst for bringing institutional funds into the crypto ecosystem.

Of course, not all institutions are necessarily bullish on Bitcoin; they can also bet on Bitcoin's decline using futures contracts. Nevertheless, for those optimistic about Bitcoin, having more institutional funds involved in Bitcoin trading could be a reason for joy.

More and more institutions getting involved, while not a guarantee of future success, is certainly a positive sign.

Originally published in partnership with LONGHASH

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