The anticipation of a potential approval for a spot-based Bitcoin Exchange-Traded Fund (ETF) by the U.S. Securities and Exchange Commission (SEC) has led to a significant increase in Bitcoin futures open interest on the Chicago Mercantile Exchange (CME). However, K33 Research warns that this enthusiasm may be short-lived as the approval could trigger a downturn in both open interest and premium levels.
On January 9, Bitcoin futures open interest on CME reached an all-time high of $6.2 billion or 135,000 in Bitcoin terms, according to data from CoinGlass. This increase follows a near doubling of CME Bitcoin open interest from 72,000 Bitcoin in mid-October, reflecting growing optimism among market participants. The bullish sentiment is further highlighted by the substantial premium of 18.7% annualized to the spot price observed in CME front-month futures contracts.
The surge in open interest is primarily due to speculation around the potential approval of the first spot-based Bitcoin ETFs. Investors expect these ETFs to hold Bitcoin directly, a departure from traditional futures-based ETFs. Steady inflows into futures-based Bitcoin ETFs, such as ProShares’ BITO, which holds Bitcoin futures traded on CME, have also contributed to the increased open interest.
Despite the current enthusiasm, K33 Research issued a cautionary note in its market report. The firm predicts that the current high open interest and premium levels may not be sustainable once the SEC approves a spot Bitcoin ETF in the U.S. K33 noted that approximately 43% of CME Bitcoin futures contracts are linked to futures-based ETFs. As investors shift towards cheaper spot ETFs, these futures funds would need to close their positions, leading to a decline in both open interest and premium levels.
According to K33’s analysis, the remaining 57% of CME Bitcoin futures contracts are held by active market participants whose exposure has increased over the past three months. Maintaining these positions open at the current premium becomes expensive, and K33 predicts that investors will likely seek to realize profits once the Bitcoin ETF receives approval. This structural rotation, along with the shift towards spot-based ETFs, could create substantial selling pressure, potentially ending CME’s all-time high regime.
Scott Johnsson, a finance lawyer at Davis Polk, outlined a timeline and approval probabilities for the Bitcoin ETF. He estimates that approval orders will be issued post-close on Wednesday, requests for acceleration from issuers will follow on Thursday, and the notice of effectiveness filed by the SEC will be marked on Friday. Trading is expected to commence the following Tuesday, with Johnsson assigning increasing probabilities of approval at each stage and a final 100% chance of trading approval. However, the recent compromise of the official X account of the SEC might shift this timeline in unpredictable ways.
At present, Bitcoin is down by 0.63% with its price pegged at $45,486, atop a market capitalization of $891 billion and a 24-hour trading volume of $38.4 billion.
This News Article was automatically generated by Bob the Bot (AI)
| Information | Details |
|---|---|
| Geography | North America |
| Countries | 🇺🇸 |
| Sentiment | neutral |
| Relevance Score | 1 |
| People | Scott Johnsson |
| Companies | ProShares, Davis Polk, Crypto News Flash, CoinGlass, U.S. Securities and Exchange Commission, TradingView, Chicago Mercantile Exchange, K33 Research |
| Currencies | Bitcoin |
| Securities | None |
