Bitcoin’s [BTC] surge during much of January might be attributed to a variety of factors, but one that could not be overlooked was the growing presence of institutional investors. While this is not to diminish the importance of retail engagement, increased institutional participation has significantly boosted futures market activity. The result of Arcane Research’s “Ahead of the curve” market update.
The Chicago Mercantile Exchange (CME) Open Interest (OI) in the futures derivatives market was a crucial component that demonstrated institutional authority. The CME is a global derivatives marketplace run by the world’s top operators and mostly utilised by institutions to trade options and futures contracts.
The CME was only 21% away from breaking its All-Time High (ATH) when it became negative following the FTX collapse in November 2022, according to Arcane.
The OI was last this high in October and December 2021, when the market was still flooded with greens. Furthermore, BTC futures ETFs debuted around this time. As a result, it also contributed to the increase.
As the OI in this area increased, Arcane observed:
“While ETF flows remain stale, CME’s open interest is surging. The growth is caused by increased direct activity as the non-ETF contribution to CME’s OI has grown from 40% to 53% so far this year.”
The spike also had an effect on the total exchange in BTC futures open interest. However, there were some setbacks. BTC kept in offshore exchanges, for example, fell by 18.6%. This may not come as a surprise given the increase in institutional futures and options trading, which meant that a huge volume would have left the reserves.
Despite the high levels of OI, the digital assets research firm observed that it differed from the funding rate. Although the measures experienced peaks and valleys, the general attitude remained neutral.
According to the Arcane report from January 24, the average funding rate on the Binance and Bybit exchanges was 0.05%. However, according to Santiment data, Binance’s financing rate was -0.01% at the time of publication. According to the on-chain analytic company, it just dipped from the Arcane amount on January 25.
Meanwhile, implied volatility has risen since the start of the Bitcoin boom. This indicator compares futures price fluctuations to realized volatility, which is based on previous price changes.
As the implied volatility increased above 60, so did the realized volatility. This meant that there were grounds for significant price movements, which may result in gains or losses. However, because the skews were fighting negatively, the volatility created bullish inclinations.
Nonetheless, investors may need to temper their enthusiasm for BTC’s positive characteristics. This was due to the Gemini exchange issue and the Genesis bankruptcy case.