Bitcoin’s break above the key $5000 resistance level has led to some frenzied activity on Wall Street, with trading in Bitcoin futures contracts spiking to record levels.
Bitcoin is now holding steady at US$5200 after a lacklustre 2018 and there is now renewed enthusiasm in the digital currency – particularly from experienced traders and investors.
The Chicago Mercentile Exchange (CME) Bitcoin Futures Market has been booming, with many traders looking to get into the game as the price of Bitcoin spikes.
The sharp upwards price movement on April 2nd seems to have the blood flowing yet again.
Why is the $5000 mark so important for Bitcoin?
Even as many ‘experts’ state that US$5000 is just another resistance for Bitcoin, it represents strong upwards movement in the face of strong selling pressure.
The hash war and consequent meltdown of Bitcoin in November led to a decline in market sentiment and saw the price tank to around $3500. Crypto-enthusiasts will recall that the ‘LAMBO’ chasing investors suddenly disappeared around this time, indicating that the market had shaken out a lot of the weaker hands.
Moreover, $5000 is an important psychological resistance level, as many traders would have put in buy and sell orders at this price. The hike on April 2nd created a conducive environment to put money back into the market through the liquidation of futures contracts worth $500 million.
The CME Futures market’s role in the next bull run
In a statement to Bloomberg, CME even remarked on this record-setting feat. It says on April 4th it saw the trading of more than 22,000 contracts, worth a combined US$546 million.
Interestingly, this high was fuelled by positive sentiment in Asian markets, which traded more than 12,000 of the contracts on that day.
A large amount of the money flowing through these futures contracts is likely to be from institutional investors, owing to the positioning of CME as a regulated institutional market. Some see the rise of futures contract trading as a positive step towards what Bitcoin investors have long been waiting for; an Exchange Traded Fund (ETF).
Paving the path to an ETF
To understand why the SEC does not want to approve an ETF, one must only look at spot markets in the cryptocurrency space. They feature largely inflated trading volumes due to bot trading and wash trading, which is something that regulators do not approve of.
In fact, cryptocurrency index provider Bitwise Investments, recently reported that real spot market volume lies in the $275 million range. This is less than 95% of what is reported on price aggregator sites. In contrast, the CME volume is more than double the volume of spot markets.
The CME Futures market might as well induce confidence in regulators that the cryptocurrency market is indeed moving toward a more institutional outlook. However, time will tell if this trend continues.