Katherine Ross

This is a segment from the Empire newsletter. To read full editions, <a href="https://blockworks.co/newsletter/empire">subscribe</a>.



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I know I’m not alone in thinking that this is one of the weirdest market environments I’ve encountered.



The selling on the equities side makes sense, and there are a few reasons for that, from a disappointing US consumer confidence reading to the tariff overhang. The crypto side of things is a whole different can of worms.&nbsp;



So we can agree that memecoins are a big part of the negative shift. I hesitate to label all of the most recent token launches — i.e. MELANIA, TRUMP and LIBRA — memecoins, but I do think they all contributed to the larger exhaustion. While they were meant to be a fun, smaller part of crypto, their dominance in the narrative has clearly led to burnout.&nbsp;



We’re seeing that in the data, with CME traders pulling back and acting wary. Perp traders, on the other hand, have been slightly more active, adding some BTC longs though, notably, longs are getting punished right now.



“CME traders remain defensive. Open interest remains flat while premiums have stayed in deep single digit territory and the February contract currently trades below spot. Annualized March futures premiums are subdued at 5.7%, with the daily next month premium declining to lows not seen since the early July Mt. Gox driven market downturn,” K33 wrote.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeVOpiaZxqjBqx2Ii1_ekIx__fHB9YgxqAK9vrT5uUGorC3s4Al-OAib6MDfuXG-jeY5P3bT3Jr3jKDVQKXNYqNK7tmTo5wqfpKx3HlfbnzzlO37pzwaR3bTfTnR9BGJGgy3wPfmQ?key=-a44cubK1dPiRoPCz5js1qHn" alt=""/><figcaption class="wp-element-caption">K33’s look into CME exposure</figcaption></figure>



For perp traders, buying the dip didn’t quite pay off.&nbsp;



“Perps have traded at discounts to spot for several weeks, but this discount narrowed amidst the open interest spike [since Monday]. Further, funding rates on Binance reached neutral terrain as leverage climbed, pointing toward traders entering longs with leverage. This behavior was quickly punished in the market, with long liquidations amplifying the move lower.”



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXey5U6we2_nAyXZDL_MAKLRfLh_oHr-G8mbZQ29a5B1pKlmv4eDuBJy9XjIHU6ffjRx2oxzp6jriEEMxJgBGnlfk7Zt3tsVbDAnLvFWAGvGDtBOouF8wDNdsqFXIVWg6xpfxdTn2w?key=-a44cubK1dPiRoPCz5js1qHn" alt=""/><figcaption class="wp-element-caption">From K33’s report</figcaption></figure>



But it really isn’t all doom and gloom, as Bitwise’s Matt Hougan noted.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">What crypto is digesting right now is the end of the memecoin boom. The combination of Melania, Libra, and the Lazarus Group using memecoins to launder stolen ETH will kill it dead. Maybe not today, but within 6 months. The good news is there are already things ready to replace…&mdash; Matt Hougan (@Matt_Hougan) <a href="https://twitter.com/Matt_Hougan/status/1894385383942885431?ref_src=twsrc%5Etfw">February 25, 2025</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The institutional adoption notably hasn’t stopped, and everyone I’ve spoken to is still rather bullish on the overall environment noting how favorable it is once we get away from crime szn.&nbsp;



That’s not to say we shouldn’t tread carefully, but there are some potential winners out there to keep a close eye on. K33 noted, in a separate report this morning, that Aave is an example to watch, given its growth.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfT1ajDAeK65_GOx5t9I8eEtpRnN-6gaQrBg8kjy5FBRSYMH0B8jjAywPBcSBPpO2W9mzrXhZSf4ZRcr6uCjeGlMv0i4lV8bFB3-jbNN8rwW2VFgR2kRIs3YYqEHFh3G_jD0-wi3Q?key=-a44cubK1dPiRoPCz5js1qHn" alt=""/><figcaption class="wp-element-caption">Source: K33</figcaption></figure>



“A constructive regulatory regime gives DeFi a new lease on life. Leading platforms such as Aave are now free to pursue innovative avenues that may have previously carried more questionable risk, such as revenue-sharing tokenomics,” K33 analysts wrote.&nbsp;



To add to that, the idea is that DeFi could also gain from actual regulatory clarity (which we still haven’t seen). Institutional players, for example, could integrate various DeFi products into portfolios — especially if spot ETH ETFs add staking.&nbsp;



I rarely opine, but I do think that this painful shift away from the memecoin narrative is a necessary one. There are pockets of opportunities within the current market if̶ ̶y̶o̶u̶ ̶f̶o̶l̶l̶o̶w̶ ̶y̶o̶u̶r̶ ̶h̶e̶a̶r̶t̶.&nbsp;



No, but really, the take that there’s still demand for projects that properly show crypto’s use cases is one I personally believe. And that’s not just reserved for stablecoins and RWAs.



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<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



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<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
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CME traders remain ‘defensive:’ K33

Gio Vicioso, CME’s head of crypto, told Blockworks that his firm has “been prepared” for the bitcoin rally taking place on Tuesday.&nbsp;



Bitcoin briefly touched $35,000 on Monday before settling around $33,000. The rally is fueled largely by the hope for a spot bitcoin ETF approval — something that the market may not get until early next year.&nbsp;



“The investor community in general is really abuzz with anticipation for the approval of a spot bitcoin ETF,” Vicioso said.



It’s not just retailers either. Vicioso told Blockworks that a very diversified mix of participants are coming into the space, and “those participants include both crypto natives as well as crypto focused funds. But we&#8217;re also seeing some of the institutional macro hedge funds, some banks, active in this space as well.”



There’s a “renewed interest” and “appetite” for crypto — largely bitcoin, he continued.



Read more: <a href="https://blockworks.co/news/bitcoin-etf-price-rally">Is bitcoin’s ETF-fueled rally to $35K premature? Well, maybe</a>



Vicioso’s comments are backed up by CME’s third-quarter report, which found that interest in <a href="https://blockworks.co/news/bitcoin-ether-derivatives-trading">both bitcoin and ether derivatives hit highs</a>.&nbsp;



While <a href="https://blockworks.co/news/bitcoin-rally-blackrock-dtcc">Vicioso’s comments align with other analysts</a> that the rally may have some legs to stand on, it may be too soon to say that crypto spring is here.&nbsp;



“It’s difficult to predict the future,” he said. But the momentum that the market saw after CoinTelegraph <a href="https://blockworks.co/news/btc-price-spot-bitcoin-etf">falsely reported that BlackRock’s bitcoin ETF</a> had gotten the green light from the US Securities and Exchange Commission shows that the “investor [community] is preparing themselves for that particular event and positioning portfolios accordingly.”



Vicioso isn’t alone in his thinking, either.&nbsp;



“I’m not sure it’s time for crypto spring just yet, but crypto seems to have a lot of positive catalysts ahead of it,” eToro’s Callie Cox told Blockworks Tuesday.



Meanwhile, Michael Silberberg, head of investor relations at Alt Tab Capital, thinks that this rally — with the potential catalysts of the spot bitcoin ETF approvals and the halving — could last until April of next year.&nbsp;



“With the [halving] looming on the horizon, Bitcoin acting like a safe haven in the current market, and wealth managers with trillions of dollars entering a market that has only ever reached about a $2 trillion market cap, I expect this to be just the very beginning of a run up through to April of next year.”



“Frankly, I am surprised by how long this move-up took, but generally, the longer the consolidation, the greater the coming action,” Silberberg said.



But, Vicioso notes, it’s not just the potential for spot bitcoin ETFs as “institutions are now talking about things like <a href="https://blockworks.co/tag/tokenization">tokenization</a> and how do they deploy or employ, say, a tokenized strategy into their business.”



“So that is driving more interest in bitcoin and ether as…a backbone for tokenization is blockchain technology. We&#8217;re seeing many more say institutions talking about how to implement the technology and I think that that&#8217;s also helping to drive value in the individual coins led by bitcoin.”



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<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



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<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
</ul>

Investors ‘abuzz with anticipation’ for spot bitcoin ETF approval: CME

James Cirrone

The CME Group, which operates the Chicago Mercantile Exchange, told Blockworks Tuesday that volumes and open interest for crypto derivatives soared in the third quarter of 2023.&nbsp;



In fact, with the ongoing bitcoin rally, CME Group said via email that Monday’s “trading session marked a record [open interest] for CME Group Bitcoin futures at 20K contracts.”



Open interest simply denotes the total number of active derivatives contracts (futures or options) held by traders. The metric demonstrates how many people in the market are interested, as the term suggests, in holding a position.



But Monday’s trading day, when bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) flashed up from around $30,500 to nearly $35,000, was no fluke according to CME Group.&nbsp;



The third quarter set a record average of 15,800 contracts for bitcoin futures, up 11% quarter over quarter. Open interest for ether futures and options jumped 22% from the second quarter.&nbsp;



Ether options contracts really skyrocketed in the third quarter though, increasing 75%. Open interest also soared 55% higher on a quarterly basis.



Read more: <a href="https://blockworks.co/news/bitcoin-liquidated-shorts-rally">$325 million in shorts liquidated amid crypto-wide market rally</a>



CME Group noted that this derivatives frenzy occurred despite major price declines in BTC and ether (<a href="https://blockworks.co/price/eth">ETH</a>) in the third quarter.



“While volatility and prices have remained mostly range bound along with trading volumes this year, CME Group continues to see increases in open interest across the Cryptocurrency suite,” analysts wrote in a newsletter.



Obviously, the environment is different now, with BTC and ETH each trading on <a href="https://blockworks.co/tag/coinbase">Coinbase</a> at elevated prices of around $34,500 and $1,800, respectively, at the time of writing.



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<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
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CME says Q3 open interest for bitcoin, ether derivatives hit all time highs

Sebastian Sinclair

As bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) marches back towards $30,000, traders will look to its market structure for clues, and find the CME futures market showing a “gap” from early March.



Thursday’s 3.7% climb to $29,900 halted just shy of that psychological price tag — a region that’s proved tough to break out of with conviction for the past two and a half weeks. Bitcoin is currently trading roughly flat on the day at $29,200.



As speculation mounts as to the asset’s direction, some traders have begun to question whether a CME futures “gap” — near $20,000 — is expected to be filled sometime this year.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Will this <a href="https://twitter.com/hashtag/Bitcoin?src=hash&amp;ref_src=twsrc%5Etfw">#Bitcoin</a> CME Gap be filled at $20,000? <a href="https://t.co/NEui6heM9I">pic.twitter.com/NEui6heM9I</a>&mdash; Crypto Rover (@rovercrc) <a href="https://twitter.com/rovercrc/status/1650866753180962816?ref_src=twsrc%5Etfw">April 25, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The substantive distance between $20,300 and $21,100 has some speculating a retest for prices nearer to those levels.



A CME gap for bitcoin refers to a price discrepancy that occurs on the Chicago Mercantile Exchange bitcoin futures chart between the closing price of one trading day and the opening price of the next trading day.



Gaps occur because the bitcoin spot market trades 24/7 on various centralized exchanges, from which CME derives its Mark Price, while the futures market only trades Sunday through Friday, from 6:00 pm to 5:00 pm ET.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="2560" height="993" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=1024&amp;h=1024" alt="" class="wp-image-53745" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=2560 2560w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/04/CME-futures-gap-scaled.jpg?w=80 80w" sizes="auto, (max-width: 2560px) 100vw, 2560px" /><figcaption class="wp-element-caption">CME Bitcoin Futures, daily time frame; Source: TradingView</figcaption></figure>



The significance of a CME gap for bitcoin is <a href="https://www.investopedia.com/articles/trading/05/playinggaps.asp">a topic of debate</a> among traders and analysts.



Some believe that gaps on the CME chart can act as significant support or resistance levels, as prices typically tend to fill the gap at a future date. Others argue that CME gaps are simply a technical phenomenon with no real predictive value.



Still, their appearance on the daily chart tends to be relatively rare, providing further credence to traders looking to derive a directional bias.



One notable CME gap for bitcoin last appeared on Jan. 13 between $20,000 and $20,700. That was later filled on March 10 — <a href="https://blockworks.co/news/silicon-valley-bank-meltdown-has-little-to-do-with-crypto">the day of the failure</a> of Silicon Valley Bank — when prices dipped to a low of $19,520.&nbsp;



Last year, as prices began to collapse from $30,000 to $17,000 in June, a relatively large $1,400 gap formed on June 10, between $28,700 and $27,300. That was recently filled earlier this month when prices drove higher.



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Bitcoin

When it Comes to Bitcoin Futures, Do We Need to Mind the Gap?

Jocelyn Yang

<div id="highlights-block_62c7eb6bb4999" class="highlights">
 <ul>
 <li>FTX proposes to let individual investors post margins directly instead of going through a broker</li>
 <li>CFTC is currently considering FTX’s proposal and evaluating public comments</li>
 </ul>
 
</div>



Cryptocurrency exchange FTX is looking to get Commodity Futures Trading Commission (CFTC)’s approval to allow individual investors to use derivatives to place leveraged bets on bitcoin, the <a href="https://www.wsj.com/articles/ftx-presses-for-crypto-derivatives-approval-agitating-legacy-exchanges-11657084236" target="_blank" rel="noreferrer noopener">Wall Street Journal</a> first reported on Wednesday. 



The regulators are currently considering the proposal and could make a decision later this year. If approved, it would mean that investors could deal directly with the cryptocurrency exchange led by Sam Bankman-Fried rather than going through a broker, which could fundamentally change the way the derivatives markets infrastructure and operate.&nbsp;



FTX’s proposal has sparked opposition from competitors and Wall Street firms alike. Terrence Duffy, CEO of Chicago Mercantile Exchange (CME), said the move would create “market risk” during a US Congressional hearing in May. The CME offers a bitcoin derivative product that is designed to compete with FTX’s offerings.&nbsp;



In March, the CFTC opened up a <a href="https://www.cftc.gov/PressRoom/PressReleases/8499-22" target="_blank" rel="noreferrer noopener">public comment request</a> regarding FTX’s proposal for amended derivatives clearing organization registration, and received comments including concerns over customer protection. 



Dennis Kelleher, co-founder, president and CEO of non-profit organization Better Markets, <a href="https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=69463&amp;SearchText=" target="_blank" rel="noreferrer noopener">wrote </a>in a letter that, during the evaluation, the CFTC must ensure “the protection of customers and market participants — and limiting if not reducing systemic risks — remain the paramount concerns.” 



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“We believe all investors should have the data, educational tools and a range of financial products available to them so they can make the best decisions possible for themselves,” an FTX spokesperson told Blockworks. </blockquote>



Chris Bae, CEO of digital asset trading firm Enhanced Digital Group, told Blockworks that it is “inevitable” that more sophisticated trading strategies emerge such as the use of derivatives as the crypto market gets more mature.



“We have seen institutional demand for structured products and derivatives being used to better navigate the current market cycle, so it is only natural the retail market will follow,” he said.&nbsp;



“Retail investors&#8217; assets deposited on these platforms should absolutely be senior to equity holders by new or old,” Bankman-Fried said in an interview event at Harvard Business School Club of New York last Thursday, referring to his company&#8217;s rescue move to crypto lenders <a href="https://cms.blockworks.co/ftx-reaches-deal-to-acquire-blockfi-for-up-to-240m/" target="_blank" rel="noreferrer noopener">BlockFi</a> and Voyager. 



Casey Wagner contributed reporting for this story.



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CFTC

FTX Seeks CFTC Approval on Derivatives Proposal

Sam Reynolds

<div id="highlights-block_6165f6dd0b2dc" class="highlights">
 <ul>
 <li>Bitcoin is up 31% so far in October, blowing past market weighted cap indexes and most other altcoins by a wide margin and pushing bitcoin’s market dominance up to 46%</li>
 <li>Institutional interest in bitcoin continues via CME futures, while bitcoin mining continues to be a profitable investment</li>
 </ul>
 
</div>



The fourth quarter of 2021 is shaping up to be ‘bitcoin season’ as new data from Arcane Research shows market interest — specifically institutional — continues to build around the world’s largest digital asset.&nbsp;



According to data <a href="https://static1.squarespace.com/static/60377b34e7791c1277aaae97/t/61657e8ebe21161e3edb98bd/1634041488063/Weekly+update+-+Arcane+Research+%28Week+40%29+2021+-+Free.pdf" target="_blank" rel="noreferrer noopener">sourced</a> by Arcane Research, bitcoin is up 31% on month during the first two weeks of October blowing past other indexes. Arcane notes that most large-cap coins like Cardano and Binance’s BNB exchange token have been struggling, posting negative returns.



The research firm also noted that bitcoin makes up roughly 40% of the index, and the index’s performance would have been much worse without bitcoin.



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="512" height="371" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-1.jpg" alt="" class="wp-image-9293" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-1.jpg?w=512 512w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-1.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-1.jpg?w=355 355w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-1.jpg?w=360 360w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-1.jpg?w=302 302w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-1.jpg?w=80 80w" sizes="auto, (max-width: 512px) 100vw, 512px" /></figure></div>



“Historically, when bitcoin has started to outperform altcoins, retail traders have not been late dumping their altcoins for bitcoin, creating a feedback loop that drives the bitcoin price even higher,” Arcane wrote in a note. “The altcoin season might be over for this time.”



And with this market dominance comes renewed interest by institutional investors in bitcoin. <a href="https://cms.blockworks.co/bitcoin-reclaims-55000-on-strong-fundamentals-markets-wrap/" target="_blank" rel="noreferrer noopener">As Blockworks has previously reported</a>, open interest on the institutional-focused CME exchange for bitcoin futures is at a record high. 



Arcane notes that open interest on CME has outpaced that of the bitcoin futures market.&nbsp;&nbsp;



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="512" height="352" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-2.jpg" alt="" class="wp-image-9294" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-2.jpg?w=512 512w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-2.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-2.jpg?w=374 374w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-2.jpg?w=380 380w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-2.jpg?w=319 319w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-2.jpg?w=80 80w" sizes="auto, (max-width: 512px) 100vw, 512px" /></figure></div>



“Institutional traders are flocking into the CME futures, betting on the approval of a bitcoin ETF backed by CME futures,” Arcane wrote. &#8220;We view this as a healthy signal from the futures market, as rapid growth in [retail driven] Bybit’s OI has previously tended to be a signal of an overextended market, whereas the opposite has been true with growing OI from the CME futures.&#8221;



<h3 class="wp-block-heading">Bitcoin miners hard at work</h3>



The bitcoin mining industry has had a record quarter thanks to a sense of market certainty with the migration of hashing power from China to the US and the established scale of industry players on the continent.



Compass Point, an equity research firm, has consistently ranked Marathon Digital and Riot Blockchain, two of the larger mining companies in the US, as buys due to their sustained profitability thanks to their scale.&nbsp;



In Arcane’s report, the firm estimates that the Antminer S9, used by both Marathon and Riot, is cash flow positive at $34,518 and the S19 is cash flow positive at $48,827.



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="512" height="364" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-3.jpg" alt="" class="wp-image-9295" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-3.jpg?w=512 512w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-3.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-3.jpg?w=361 361w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-3.jpg?w=367 367w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-3.jpg?w=308 308w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Arcane-3.jpg?w=80 80w" sizes="auto, (max-width: 512px) 100vw, 512px" /></figure></div>



“Bitcoin mining has been highly profitable during the whole year. The bitcoin price has increased by 92%, while the hashrate is at the same level as it was last year,” Arcane wrote.



Blockworks has previously reported that <a href="https://cms.blockworks.co/bitcoin-mining-shifts-to-n-america-amid-fee-compression/" target="_blank" rel="noreferrer noopener">declining transaction fees</a> on the digital coin&#8217;s network aren’t hindering miners’ expansion into North America.



“Although fees declining isn’t great for miners, I don’t see this as a long-term issue. We are still so early in the digital asset adoption curve that I think this will iron itself out over time,” Brian Dixon, chief operating officer of research firm Off the Chain Capital, told Blockworks in a previous interview. “Most well-known mining operations are very profitable and can sustain themselves during this period of volatility.”&nbsp;



Kevin Zhang, vice president of business development at Foundry, a Digital Currency Group subsidiary focused on financing and credit for miners, said that fee compression wouldn’t be an issue unless the price of bitcoin doesn’t appreciate — but since then the price of bitcoin has risen from around $47,000 to just over $55,000 with momentum building for a sustained rally in the fourth quarter.&nbsp;



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Are you a UK or EU reader that can’t get enough investor-focused content on digital assets?&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.



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Arcane Research

Institutions Are ‘Piling In’ on Bitcoin Futures and Mining

Casey Wagner

<div id="highlights-block_615366b13b4ce" class="highlights">
 <ul>
 <li>Genesis has introduced a trade that will allow investors to lock in exposure to bitcoin futures end-of-day closing price </li>
 <li>Basis trade at index close has long been used in traditional equities markets, but this is the first time that it has been applied to crypto </li>
 </ul>
 
</div>



Genesis Global Capital and Akuna Capital have completed the first ever trade that will allow investors to lock in exposure to bitcoin reference rate (BRR).&nbsp;



The companies have completed the first over-the-counter (OTC) block trade of a basis trade at index close (BTIC) transaction on Chicago Mercantile Exchange bitcoin futures contracts.&nbsp;



BTIC has long been used in traditional equities markets, but this is the first time that it has been made available for cryptocurrencies. It’s a move that will allow institutional investors to buy or sell as a basis to the reference rate, which, for bitcoin, is the US dollar price of one bitcoin as of 4pm London time.&nbsp;



<a href="https://www.cmegroup.com/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html#" target="_blank" rel="noreferrer noopener">BRR</a> aggregates the trade flow of major bitcoin spot exchanges from 3pm to 4pm London time daily. It is intended to serve as a tradable reference rate that marks a type of “end-of-day price” for bitcoin, although the digital asset really trades on a 24/7 cycle. 



“It’s very important for people who are referenced to that benchmark, which is a lot of people, it’s people who traded futures; it&#8217;s people who have ETFs that closed at 4pm London; it’s funds that have to mark their NAV at 4pm London,” said Joshua Lim, head of derivative trading at Genesis.&nbsp; “Over time, more and more people started using it as a reference point, and so it&#8217;s important to have a way to trade that.”&nbsp;



While CME has offered bitcoin futures contracts since 2017 and cash-settled micro futures contracts since March 2021, this new trade offers greater exposure to existing products. Genesis is the liquidity provider for CME’s full suite of bitcoin and ether futures products.&nbsp;



“This is the first time we’re offering BTIC for our cryptocurrency futures and we’re pleased Genesis is able to support and provide liquidity for BTIC on day one,” said Tim McCourt, CME’s global head of equity index and alternative investment products, in a statement. “This is another example of how we’re providing innovative solutions to clients who want to gain exposure to CME bitcoin and ether futures.”



The news comes as <a href="https://cms.blockworks.co/a-futures-based-bitcoin-etf-could-be-suboptimal-heres-why/" target="_blank" rel="noreferrer noopener">speculation about a potential bitcoin futures</a> exchange-traded product continues to mount. When asked about when or if the US Securities and Exchange Commission would approve such a product, Lim did not name a date, but said the increased volatility is expected. 



If approved, there will likely be a significant inflow of the assets into futures-based products, he said. This will cause a lot of distortions on the CME futures curve as people will be forced to trade that particular instrument, as opposed to now, where that instrument does not have significant demand given the high collateral requirements.



“If there&#8217;s an ETF, the AUM on those futures has to increase, the open interest on those futures has to increase, and more people will have to post dollar collateral, which will make funding those positions very expensive,” said Lim. “We&#8217;re very interested in seeing how that plays out, because that will result in the futures sort of trading at even higher premiums than they currently do, relative to spot.”