/Crypto Based Derivatives Trading Soars In CME – A Sign Of Sentiment Revival?

Crypto Based Derivatives Trading Soars In CME – A Sign Of Sentiment Revival?

The year 2022 has been an extremely hard period for investors and traders who wanted to join the crypto bandwagon.

Last year saw high profile crypto companies collapsing completely, sending waves across the market and wiping off billions of dollars worth of investments.

This bearishness, however, has been flipped to bullishness as the crypto market recorded recent highs, breaking through crucial resistances and giving profits to investors.

But the recent market downturn remained a cause for concern for investors. At the time of writing, CoinMarketCap notes that the market shrunk by nearly a percent today as Bitcoin (BTC) and Ethereum (ETH) slipped because of recent negative macroeconomic events.

However, despite the downturn, trade volume in the Chicago Mercantile Exchange (CME) for crypto-based futures is skyrocketing. This can be an indicator that smart money might be flowing into the crypto market very soon.

Crypto Based Futures Attract Smart Money

A recent report by CoinShare showed a glimpse of the rough tides ahead with large capital outflows from the crypto market, adding on to the overall bearishness surrounding it.

However, derivatives – a financial product that derives its value from an underlying asset like crypto – have been performing rather well in the CME, the world’s biggest market for derivative products.

Based on data by The Block, it shows that metrics concerning investors and futures contracts have soared since the start of the year.

Large Open Interest holders of Bitcoin-based futures contracts have gone up to a new all-time-high of 115, a leg-up from 2020’s peak of 110 (see chart below).

One of the most notable metric, however, is the categories of traders that hold these large open interest futures.

Long positions held on Bitcoin-based futures are mostly held by asset managers and hedge funds.

Hedge funds are a surprise to appear in this list considering that nearly a week ago, capital outflows by major institutions plagued the market with negative sentiment. This can be a further sign that smart money is still interested in crypto. 

This led to short positions to be dropped by the two trader categories with a substantial depression in short positions as the year started.

However, asset managers are still considerably more bullish than hedge funds in terms of net positions on BTC futures.

BTCUSD currently trading at $21,710 on the daily chart | Chart: TradingView.com

Regulatory Clampdown Possibly The Driving Factor

US regulatory crackdown on major centralized exchanges may have proven to be the driving factor for this increase in futures market trade volumes.

Recent reports about the US Securities and Exchange Commission’s clampdown shows that the agency is bent on regulating the space.

With 2022 being a fresh memory on both retail and institutional investors, the futures market might be a way to find regulation in an unregulated space like crypto.

-Featured image from Carnegie Mellon University

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