Investors abandon ship on Bitcoin Futures – ETFs dominate the crypto scene

The landscape of Bitcoin investment is undergoing a significant shift as demand for Bitcoin futures appears to be cooling off while investors increasingly turn their attention to Exchange-Traded Funds (ETFs). This transition follows the recent debut of US-listed ETFs that directly hold Bitcoin, marking a notable development in the crypto market.

These developments mark a shift in the crypto landscape, with increased accessibility to Bitcoin through ETFs contributing to rising demand.

Bitcoin features investments in the rocks

BTC futures are financial contracts that obligate the buyer to purchase or the seller to sell a specific amount of Bitcoin at a predetermined price on a specified future date.  These features allow investors to speculate on the future price of Bitcoin without owning the cryptocurrency itself.

BTC futures contracts have a specified expiration date, and traders can choose contracts with different expiration dates based on their trading strategies.

Per available market data, Bitcoin’s futures market is witnessing a notable shift as demand cools in response to the closure of the ETF era. The open interest for CME Group BTC futures has dropped by approximately 24%, reaching 20,679 contracts by January 30, 2024.

This decline is attributed to the surge in popularity of spot BTC ETFs, with the launch of ten such ETFs causing a significant reduction in futures open interest. Investors are flocking to these spot ETFs, leading to a reevaluation of their strategies.

The ETF era’s closure has implications for BTC’s overall market dynamics. The decline in futures demand is a direct response to investors shifting their focus towards ETFs, seeking alternative investment avenues in the cryptocurrency space with a hope for clear crypto regulations.

The move towards ETFs is further emphasized by the drop in BTC prices, down 20% from post-ETF highs in Nov 2021. This correction is partially attributed to the sale of assets from the bankrupt crypto exchange FTX.

At the time of writing, BTC is worth $42,739.58, up 0.4% from an hour ago and down 1.3% from yesterday. BTC’s value today is 6.9% higher than what it was seven days ago. In the last 24 hours, the total volume of BTC transactions was $23,144,472,691.

The value indicates a 48.82% crypto market dominance, with the global crypto market cap sitting at $1.72 trillion.

Market Data on BTC Futures

According to data compiled by Bloomberg, open interest had previously peaked at an all-time high, primarily due to Bitcoin’s extraordinary 157% growth last year, which had been expected in anticipation of the ETF launches.

The increased prominence of CME derivatives was due to the fact that they offered a regulated venue for BTC exposure. As spot ETFs that fulfill a comparable function have become available, open interest in CME BTC futures has decreased. 

Futures contracts were additionally employed in arbitrage strategies pertaining to the Grayscale Bitcoin Trust (GBTC), which is valued at $21 billion. However, according to DACM, a manager of crypto assets, this specific transaction appears to have run its course.

Vetle Lunde, a senior analyst at K33 Research, observes that despite the possibility of diminished activity in CME BTC futures as a result of investors transitioning to US ETFs and BTC’s moderating rally, these contracts continue to be vital and exceptionally liquid constituents of the crypto market. 

Lunde underscores the prospective function of ETF units as hedging instruments for authorized participants engaged in the management of ETF unit creation and redemption.

CME and Binance, a crypto exchange, are prominent platforms for BTC futures. According to recent data obtained from Coinglass, a substantial portion of the aggregate decline in BTC futures activity can be attributed to the decline in CME open interest.