, , ,

Institutional Investors Are Pouring Into Bitcoin Derivatives

  • Institutional investors are pouring into bitcoin.
  • Trading volume across top U.S.-regulated BTC futures markets is skyrocketing.
  • Retail investors are losing interest in the pioneer cryptocurrency.

The massive downturn that the cryptocurrency market experienced over the last week sent retail investors into “extreme fear,” according to the Crypto Fear and Greed Index (CFGI). Even Mark Dow, a former U.S. Treasury and International Monetary Fund economist, boasted on Twitter that bitcoin was “dying” after the sell-off. But data shows otherwise.

As bitcoin plummeted below $8,000, U.S. regulated BTC futures markets saw their volumes skyrocket. The increasing demand for crypto derivatives products is a clear sign of the growing interest among institutional investors despite the high levels of volatility in the market.

BTC Futures Volumes
Bitcoin futures contracts volume across institutional and retail exchanges. | Source: Skew

Trading Volume Explodes on U.S. Regulated BTC Futures Markets

Bitcoin’s market value took a nosedive in the last two weeks. The flagship cryptocurrency went from trading at a high of $9,100 on Nov. 11 to a low of $6,600 on Nov. 25.

During this time period, there was nearly $1 billion worth of long and short positions liquidated on BitMEX, a Seychelles-based crypto derivatives trading platform.

Bitmex Liquidations
$1 billion has been liquidated in BitMEX since Nov.11. | Source: DataMish

Despite the massive amount of retail investors that got rekt on this platform, institutional investors appear to have bought the dip.

On Nov. 22, Bakkt, a physically settled bitcoin futures exchange, saw its trading volume shoot up to reach a new all-time high. According to data gathered from the Intercontinental Exchange (ICE), 2,728 BTC monthly futures contracts were traded on this day alone, which is equivalent to over $20.3 million.

The sudden spike in volume represents a 66% increase over the previous 24-hour period. And, it is 30% greater than Bakkt’s previous all-time high of 1,756 BTC on Nov. 9.

Bakkts's Bitcoin futures contracts volume
Bakkts’s bitcoin futures contracts volume. | Source: Skew

A similar phenomenon occurred on the Chicago Mercantile Exchange (CME). On Friday, the CME reported $424 million in aggregate trading volume, while on Monday it registered $400 million. This is the highest aggregated trading volume recorded since September.

CME's Bitcoin futures contracts volume
CME’s bitcoin futures contracts volume. | Source: Skew

Institutional Investors Pour in While Retail Investors Flee

Institutional investors seem to be enjoying BTC’s price action. In fact, data from Grayscale Investment’s Bitcoin Trust shows that capital is flowing massively into bitcoin.

In its latest quarterly report, Grayscale, a trusted authority on digital currency investing and cryptocurrency asset management, disclosed a whopping $171.7 million inflow of institutional capital into its Bitcoin Trust. According to the firm, this is the “heaviest” quarterly inflow in the product’s six-year history.

Due to the increasing demand from accredited investors, the firm filed a voluntary registration statement on Form 10 with the U.S. Securities and Exchange Commission (SEC) on behalf of its Bitcoin Trust. If approved, the investment trust would acquire the status of an SEC-reporting company. It would then become the first crypto investment instrument to achieve so.

Meanwhile, interest from retail investors appears to be fading away. The number of addresses with balances greater or equal to 0.1 BTC dropped significantly in October. This could imply that the average Joe may not be jumping on the crypto bandwagon anytime soon.

Addresses with over 0.1 BTC
Addresses with over 0.1 BTC plummeted dramatically. | Source: Glassnode Studio

The increasing interest in bitcoin among institutional investors shows how this cryptocurrency is maturing. Now many countries around the world are developing regulatory frameworks to allow financial institutions to trade this cryptocurrency.