Although Bitcoin managed to get back on its track and 2019 is remembering about the 2017 incredible bull run, analysts at JPMorgan Chase believe that the market is completely different now, even though the performance is quite impressive:
“The overstatement of trading volumes by cryptocurrency exchanges, and by implication the understatement of the importance of listed futures, suggests that market structure has likely changed considerably since the previous spike in Bitcoin prices in end-2017 with a greater influence from institutional investors.”
Bitcoin futures may represent the instrument ignored by most of the cryptocurrency experts, but what we are witnessing this year is a significant shift towards derivatives based on cryptocurrencies, as traditional exchange platforms continue to lose trust.
As research conducted by Bitwise back in March suggested, around 95% of the Bitcoin trading volume reported by unregulated exchange platforms seems suspect. If we do the math on the May $725 billion in volume reported, it means that last month Bitcoin trading volume on exchange platforms was just $36 billion.
That is not such a big surprise, considering that people are moving towards futures or platforms like MGC Logic crypto trading. The aggregate estimate volume on both the CME and CBOE futures contracts is $12 billion for the month of May, meaning futures now amount for about a quarter of the overall Bitcoin trading.
Even though CBOE had already announced it will delist Bitcoin futures, CME will continue on, and Bakkt, the trading platform launched by ICE, will begin to test a new form of Bitcoin futures contract in July.
With a meaningful share of the overall volume now on the futures markets, it means the financial industry now has a much greater influence on the Bitcoin price. Retail investors are not generally active on futures, as institutions buy them more often. In the case of Bitcoin, it was unsafe for big investors to buy the largest cryptocurrency through traditional exchange platforms.
Now that futures based on Bitcoin are live since the end of 2017, big financial institutions are able to trade Bitcoin in a regulated environment and profit from the high volatility of cryptocurrency prices.
As long as Bitcoin manages to at least remain at the current high levels, trading activity on the futures markets as well as exchanges will remain elevated. The only risk is for the largest cryptocurrency to go again into a bubble, a situation which happened back in 2017 and ended very bad last year.
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