CME Micro Bitcoin futures exceed 1 million contracts as institutional volume surges

Micro Bitcoin futures launched by the Chicago Mercantile Exchange (CME) in early May have gained considerable traction in the first two months of trading.

The right time to launch smaller Bitcoin futures contracts

CME Group launched Micro Bitcoin futures contracts on May 3, providing a more cost-effective entry for market participants. 

Worth 0.1 BTC, the derivatives product aimed to open the door to wider mainstream adoption of the new asset class. By comparison, the main Bitcoin futures contract unit is 5 BTC. These financial instruments are cash-settled, based on the CME CF Bitcoin Reference Rate. 

With the launch of CME’s Bitcoin futures contract in late 2017, the cryptocurrency derivatives industry quickly picked up momentum. By December 2020, these trades made up 55% of the overall market.

Citing the growing demand for smaller-sized contracts, CME announced its intent to launch a micro Bitcoin derivatives product, which has since surpassed 1 million contracts traded since its launch. 

According to CME executive Tim McCourt, the new financial product has been popular among institutions and day traders seeking to control their risk:

This micro-sized contract is designed to provide market participants – from institutions to smaller, sophisticated, active traders – with another tool to hedge their spot Bitcoin price risk or execute Bitcoin trading strategies in an efficient, cost-effective and easily accessible way.

These contracts address two main concerns for potential crypto investors, including the high price of entry and the need for regulated financial products. 

Brooks Dudley, the global head of digital assets at ED&F Man Capital Markets, said:

We’ve seen more institutional volume than we anticipated, which shows that the timing was right for a smaller Bitcoin contract.

The increased activity in the derivatives market suggests that traders are hedging their positions, and betting on the short-term Bitcoin price moves. Institutions have reduced their long-term exposure to Bitcoin and other large cap cryptocurrencies, with outflows totaling $79 million last week, according to CoinShares.