After a chilling “crypto winter,” there are signs of a thaw – particularly in the crypto derivatives space. While many crypto-native exchanges are restricted for firms in countries such as the US, CME provides an easy point of entry for institutional investors ready to jump back into crypto.
What you need to know about the current state of crypto derivatives – and CME’s position in the market:
2022 was a rough year – Are investors truly ready to reenter this market?
All signs point to “yes.”
True, the past year brought some serious blows to crypto, particularly the November implosion of the FTX exchange. The two largest currencies, Bitcoin (BTC) and ether (ETH), lost more than USD 2 trillion – or about 75 percent of their value – over the course of the year.
However, 2023 brought renewed interest in the crypto space, with BTC and ETH prices up 70% and 55% respectively through April. Crypto derivatives have rebounded as well: Open interest in BTC options exploded 286% from January to April, nearing all-time highs, while BTC futures were up 28%. The robust growth in options interest moves the market more in line with trad-fi structure – which experts had predicted would follow greater institutional involvement.
What role does CME play in the crypto ecosystem?
Trad-fi exchange CME is the largest futures exchange in North America and one of the largest in the world. This regulated market offers firms a way to gain exposure to cryptocurrency without owning the actual currency and as part of a diversified portfolio of various asset classes. CME’s stature and stability also provide assurance to institutional investors leery of recent uncertainty in the crypto-native markets.
After beginning in crypto in 2017 by offering BTC futures, CME has gradually added other offerings, including options on futures and micro futures and options for both BTC and ETH. The exchange expanded its offerings in May 2023 to add ten new weekly options on futures for both currencies.
CME has benefited from the recent exodus of investors from crypto-native spot platforms to futures. In a February interview, CME Group CEO Terry Duffy noted that the exchange saw increased open interest and trades in crypto products toward the end of 2022. In 2023, while crypto-native exchanges lead the pack in crypto options and futures open interest, the trad-fi exchange holds its own:
YTD Open interest in BTC derivatives through May 15, 2023
|Options Exchanges||% of Market||Futures Exchanges||% of Market|
It’s compelling to see CME in the top three for both futures and options, making it a solid choice for traders wanting to access these markets.
How can Exegy help me enter CME crypto derivatives?
For over a decade, firms trading on CME have used Exegy’s Metro options trading platform to model, execute, and evaluate options risk across all the exchanges’ futures and options products.
Metro traders are equipped with an advanced tool set to navigate the complex crypto landscape – tools that include dynamic volatility surface fitting, automated execution in the form of market making and market taking, and robust risk analysis. CME’s user-defined spread creation and RFQ functionality have long been a part of Metro’s platform, allowing users to easily create and price complex options strategies as well as manage and respond to RFQs as they come in. The same pricing and spread tools can be used for participation in call-around and OTC markets, which can also be aggregated with listed futures and options on CME and other exchanges for risk management purposes.
For current Metro users, adding crypto to your CME trading is as easy as contacting Metro Support or your Account Manager. Or talk to an Exegy expert about getting started with Metro.
And when you’re ready to branch out from the CME, watch this space. Exegy is committed to supporting our customers as they enter and expand in the growing crypto market.