CME’s Bitcoin Futures Premiums Surge, Hints Rising Institutional Demand

With the price of Bitcoin surged to $55,000 level today, the Chicago Mercantile Exchange (CME) ’s futures premiums have soared high, an incident not witnessed since April. This could signal that Q4 is a bull run for the flagship cryptocurrency.

Bitcoin’s latest bullishness seems to partly reflect Federal Reserve chairman Jerome Powell and SEC Gary Gensler stating that the US has no intentions to ban cryptocurrencies. Also, the crypto surge appears to follow periods of low volatility. Bitcoin’s current trading appears the crypto token has shaken off concerns about more crackdowns from China and Fed tightening.

Besides that, the latest development by bitcoin’s price surging above $50,000 level appeared to be backed by renewed purchases by institutions.

According to data from Arcane Research, the CME traders are currently hungry for Bitcoin futures. Based on Arcane Research’s data, front-month Bitcoin futures contracts based on the Chicago Mercantile Exchange are trading at an annualized premium of 10% to spot price. This is the highest level – currently, the values are around 8% and 10% high not seen since May this year when they remained around 3 to 5%.

The rise in premium indicates high demand among institutional investors for building long exposures in Bitcoin, which shows bullish sentiment in the market currently, Arcane Research stated.

“The front-month contract on CME is by far the most frequently traded BTC futures contract on the exchange, and right now, bullish tendencies seem to be brewing on the institutional platform,” Arcane noted.

Meanwhile, the CME is commonly regarded as synonymous with institutions. Large institutions normally prefer trading futures of any product through a regulated and established exchange, such as the Chicago-based derivatives giant. Apart from increasing their long Bitcoin exposures, major institutions are adding a rising degree of diversifications to their portfolios by increasing their positions in CME ether futures.

Since May this year, institutions have reduced their Bitcoin futures holdings to add Ether futures. But currently, they are increasing their Bitcoin futures while holding Ether futures that have majorly remained unchanged since early September at just more than 1,400 contracts. This signals rising institutional interest in Bitcoin and altcoin futures contracts being traded on the CME and typically requires significant capital for institutional investors.

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JPMorgan says MassMutual Bitcoin Investment Signals Institutional Demand Could Quickly Grow by $600 Billion

JPMorgan thinks growing institutional demand could see up to $600 billion flow into Bitcoin in the near future after insurance giant Massachusetts Mutual Life Insurance Co. (MassMutual) invested $100 million into BTC.

Concept of Bitcoin in demand

While the $100 million Bitcoin investment is quite small for the US-based insurance company, whose general investment account totalled nearly $235 billion as of Sept. 30 this year—JPMorgan Chase & Co think it signals the potential for an additional $600 billion of institutional investment flowing into the BTC cryptocurrency’s marketcap in the near future.

According to Bloomberg on Dec. 14, JPMorgan’s Nikolaos Panigirtzoglou said MassMutuals $100 million BTC purchase suggests adoption of Bitcoin is spreading from family offices and wealthy investors to insurance firms and pension funds.

Panigirtzoglou predicts that more institutions are going to follow MassMutual’s, the JPMorgan strategist said:

“MassMutual’s Bitcoin purchases represent another milestone in the Bitcoin adoption by institutional investors. One can see the potential demand that could arise over the coming years as other insurance companies and pension funds follow MassMutual’s example.”

The JPMorgan strategist said that insurance firms and pension funds are unlikely to ever make high allocations, but even a small shift toward the cryptocurrency could be significant—with only 1% of pension funds and insurance companies in the US, euro area, UK and Japan assets needed to accrue an additional $600 billion for Bitcoin’s marketcap.

Bitcoin Replacing Gold?

Bitcoin advocates argue the cryptocurrency is gaining more recognition as a portfolio diversifier amid the dollar decline in purchasing power similar to gold. However, many institutions remain unconvinced of Bitcoin’s ability  to act as a store of wealth since the cryptocurrency world is prone to high volatility and cybercrime.

Tom Jessop, President of Fidelity Investments digital assets arm recently told Reuters, that his firm still uses the word “potential” when describing volatile Bitcoin’s ability to act as a store of value, although many investors appear sold on the BTC as a safe haven narrative.

The Bitcoin price has been flirting with $20,000 over the past few weeks, BTC’s macro bull-run appears largely driven by growing consensus in the market and amongst institutional investors of the crypto’s utility as a store of value against a weakening dollar. However, Fidelity Digital Assets President Tom Jessop explained to the Reuters Global Investment Outlook Summit that Bitcoin’s volatility makes it difficult to classify as a true store of value. Jessop said:

“We use the word ‘potential store of value’ as bitcoin is still extremely volatile, and by any standard perhaps would not achieve the mantle of a true store of value.”

JPMorgan CEO, Jamie Dimon also remains skeptical of Bitcoin, and does not appear completely onboard with the major US bank’s strategists who seem to be growing bullish on BTC.

In a recent report by Bloomberg, the JPMorgan strategists reported that Bitcoin’s institutional adoption had only started to pick up steam:

“The adoption of bitcoin by institutional investors has only begun, while for gold its adoption by institutional investors is very advanced.”

Meanwhile Bitcoin billionaire Tyler Winklevoss remains as bullish as ever that Bitcoin price will surge to $500,000 and replace gold as a store of value with a $9 trillion market cap by 2030. On the news of MassMutual’s $100 million investment, Winklevoss tweeted:

“And another domino falls on the yellow brick road to #Bitcoin being worth $500k per bitcoin. Who’s next?”

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Bitcoin (BTC) $ 26,574.12 2.15%
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