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In early May, the Chicago-based derivatives market debuted its Micro Bitcoin futures product, giving investors smaller positioning options.
Institutional exposure to cryptocurrencies through futures grew further in the second quarter, with CME Group’s newly introduced Bitcoin (BTC) micro contract seeing a significant increase in its first two months of trade.
CME’s Micro Bitcoin futures contract has already topped 1 million contracts traded since its debut on May 3, the Chicago-based derivatives exchange said earlier this week. According to CME CEO Tim McCourt, the new product has been well received by institutions and day traders looking to hedge their spot Bitcoin price risk.
The micro contract is one-tenth the size of one Bitcoin and is denominated in 0.1 BTC. In comparison, the primary Bitcoin futures contract unit at the CME is 5 BTC.
“We’ve seen more institutional volume than we expected,” said Brooks Dudley, global head of digital assets at ED&F Man Capital Markets.
According to CoinShares statistics, institutions have cut their long-term exposure to Bitcoin and other cryptocurrencies during the recent slump, with withdrawals totalling $79 million last week. In the case of BTC, newly liquidated coins are being picked up by long-term investors who remain confident in their investment’s long-term prospects.
The increased activity in the futures market implies that traders are hedging their holdings, gambling on Bitcoin’s short-term directional movement, or both. Derivatives trading has boosted institutional exposure to Bitcoin, but it has also become a cause of concern for spot holders. As reported, Friday’s $6 billion in Bitcoin and Ether (ETH) expiries created considerable friction in the market, with some traders expecting extreme volatility.
High volatility was reported in the latter half of the week, with the BTC price falling 13.6% peak-to-trough between June 24-26.