Open interest on Bitcoin futures listed on the Chicago Mercantile Exchange (CME) has been outpacing open interest on Binance futures since November 2023. As of Jan. 23, around 30% of the total open interest in the Bitcoin futures market is on CME.
However, as spot Bitcoin ETFs begin to gain traction in the U.S., amassing over $1 billion in inflows over 12 days, institutional traders seem to be ditching their futures positions in favor of the new institutional investment vehicle.
CryptoSlate reported a significant one-drop in CME open interest on Jan. 12, which sparked a sharp downward trend. And while open interest on CME still remains well above the open interest on Binance, some analysts believe we could see a further reduction in CME OI in the coming weeks. This could lead Binance to regain its top position in the Bitcoin futures market.
This shift can have a significant impact on the market. However, to understand the importance of this shift and its implications, it’s crucial to understand the mechanisms behind CME and Binance futures and the difference between the two platforms.
CME Bitcoin futures
The Chicago Mercantile Exchange (CME) is one of the largest derivatives exchanges in the world. It launched Bitcoin futures in December 2017, marking a significant step in bringing cryptocurrency into mainstream finance.
As a U.S. exchange, CME operates under the stringent regulatory framework of the Commodity Futures Trading Commission (CFTC). This regulatory compliance is pivotal for U.S. traders and institutions, offering a level of security and legal assurance critical for substantial investments.
Future contracts on CME are only cash-settled. Cash settlement in futures contracts means that once the contract expires, the holder receives or pays the difference between the contract price (the price at which they agreed to buy/sell the asset) and the spot price of the asset (the market price of the asset at the time of contract expiration). This is settled in cash rather than the physical delivery of the asset, which in this case is Bitcoin.
For example, if investors hold a long position and the spot price of Bitcoin at expiration is higher than their contract price, they’ll receive the difference in cash. Conversely, if they’re in a short position and the spot price is lower than their contract price at expiration, they’ll make a profit paid in cash. This mechanism is beneficial for traders who wish to speculate on the price of Bitcoin without the…
Click Here to Read the Full Original Article at Bitcoin (BTC) News | CryptoSlate…
