CME Group: Investors Are Still Hungry for Bitcoin

CME Group launched its micro future option in early May 2021 after receiving feedback from users that the original bitcoin futures contracts were too large.

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Tim McCourt, CME Group

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key takeaways

  • The company launched its micro future option in early May 2021
  • Managing director Tim McCourt says the exchange has seen volumes remain pretty resilient during the latest bitcoin drawdown, which is not something that they have seen in the years previously

The price may be stalling, but institutional and retail demand for bitcoin is stronger than ever, CME Group said. 

“What’s interesting is when we saw the run-up in price, there certainly was a corresponding upwelling of institutional interest,” said Tim McCourt, managing director and global head of equity product at CME Group. “More and more firms and institutions were allocating part of their portfolio to bitcoin, that still remains the case based on our conversations with clients.” 

The world’s largest financial derivatives exchange started offering bitcoin futures contracts in late 2017, right as the digital asset was approaching $20,000 for the first time. 

CME Group launched its micro future option in early May 2021 after receiving feedback from users that the original bitcoin futures contracts were too large. Similar to their predecessor, micro bitcoin futures are cash-settled to the CME CF Bitcoin Reference Rate, which is a once-a-day reference rate of the U.S. dollar price of bitcoin. 

“The micro contract is 1/10 of one bitcoin, 1/50 is the size of the five bitcoin future, and it is just a more precise tool,” said McCourt. “It allows clients to more precisely hedge, they can deploy more precise trading strategies, they can scale their positions up and down throughout the day, it’s really been a benefit to all types of clients, from institutions to active individual traders.” 

The demand McCourt mentioned appears to be real. In the first month, micro bitcoin future trading volume reached more than 650,000 total contracts traded across seven expirations. 

While trading volume across exchanges surged earlier this year, bitcoin’s recent sell-off has many anticipating a retreat from investors. The largest digital currency has tumbled nearly 35% in the past three months, in part due to environmental and security concerns. 

“When we see the drawdown in the bitcoin price, back to the $38,000 to $39,000 level where we are now in the futures market, certainly that may take some of the buy-side bias out of the equation, just with any type of asset sell-off,” said McCourt. “What’s interesting is this type of price action is a key reminder that there’s a need to manage risk if you’re already in bitcoin, or if you’re already in cryptocurrency. In general, we’ve seen volumes remain pretty resilient in this drawdown, which is not something that we saw in the years previously.” 

Long-time crypto investors are no strangers to price volatility. 2018’s bear market, often dubbed the ‘crypto winter,’ saw a large rotation out of digital assets. But McCourt said this rally is different. 

“I think it’s a balance of people having increased risks to manage as the price moves more as well as people continuing to invest in and allocate to bitcoin,” McCourt said. “The personality of the market continues to evolve. From our perspective, we are very pleased with the way the market has worked, both when the price has been up and during the slight retracement here to the 40,000 level as well.” 

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