Why falling CME futures volume is bullish for Bitcoin

Stock markets are not the only things in the red at the moment. Bitcoin futures volume on the Chicago Mercantile Exchange (CME) has crashed almost 90% over the past few days as institutional investors hold positions.

The CME has shown a violent drop off in daily volume for its Bitcoin futures products.

The chart from Skew Markets shows a peak last week of US$1.1 billion [AU$1.6 billion], which had slumped over 89%, to $118 million by the end of the week.

bitcoin futures
Credit – Skew.com

Futures volume collapses, OI rises

The drop brought the CME’s Bitcoin futures to its lowest level recorded so far this year, indicating that institutional investors could be holding on to positions.

While daily futures volume collapsed last week, Open Interest (OI) remained high with just over $300 million on Friday.

Open interest refers to the number of futures contracts outstanding on an official exchange at any one time, and volume is the number of contracts traded in a given period.

When volume falls but OI remains high it could be a sign that investors are holding which is bullish for Bitcoin.

So far this year, BTC has made 34% to current prices, which appear to be holding at the moment.

The strongest day of trade on record for CME’s BTC futures occurred on May 13, 2019, with $1.3 billion worth of contracts exchanged.

Volume has only exceeded a billion dollars for three days in the product’s history.

The CME futures gap has often been used to track Bitcoin price fluctuations, as closures result in the asset returning to the price level before it opened up.

The gap forms on the weekends when these major exchanges are closed and there is sharp movement in Bitcoin prices during this time.

Bakkt OI Falls

Open Interest on Bakkt has slumped 42% from its yearly high of $19 million in mid-February to a low of $11 million at the end of last week.

Volume for its physically settled Bitcoin futures has taken a 64% hit, sliding from $21 million at the beginning of last week to $7.6 million by its end.

Cash settled Bitcoin contract volume on Bakkt fell from $13 million to $11 million over the same period.

bitcoin OI
Credit – Skew.com

OI has often been seen as a bullish indicator but can trigger a correction when it reaches critical levels, as seen on BitMEX recently. It had started to climb again on Bakkt by Friday.

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