CME overtakes Binance to grab largest share of Bitcoin futures open interest

Binance’s dominance of Bitcoin futures open interest has been toppled by traditional derivatives market place heavyweight Chicago Mercantile Exchange (CME), following Bitcoin’s first move past the $37,000 mark in over 18 months.

A number of analysts highlighted the ‘flippening’ of Binance by CME, with the latter overtaking the global cryptocurrency exchange for the largest share of Bitcoin futures open interest.

Open interest is a concept commonly used in futures and options markets to measure the total number of outstanding contracts. The metric represents the total number of contracts that are held by traders at any given point in time. The difference between the number of contracts that are held by buyers (longs) and the number of contracts held by sellers (shorts) determines open interest.

Bitcoin futures volume and open interest on CME over the past month. Source: CME

Bloomberg Intelligence exchange-traded fund (ETF) research analyst James Seyffart followed up an initial X (formerly Twitter) post from Will Clemente, questioning whether CME’s growing amount of Bitcoin futures open interest would appease the United States Securities and Exchange Commission’s (SEC) historical concerns over the depth of Bitcoin markets and the potential for market manipulation.

This has long been a point of contention, which has led to the SEC holding back from approving several spot Bitcoin ETF applications over the past few years. The regulator previously told the likes of BlackRock and Fidelity that their filings were “inadequate” due to the omission of declarations relating to the markets in which the Bitcoin ETFs will derive their value.

In July 2023, the Chicago Board Options Exchange (CBOE) refiled a submission for Bitcoin spot ETFs following feedback from the SEC. Fidelity intends to launch its Bitcoin ETF product on CBOE, while BlackRock, the world’s largest asset manager, grabbed headlines for its proposed Bitcoin ETF, which is set to be offered on the Nasdaq.

CBOE’s amended filing with the SEC highlighted its efforts to take additional steps to ensure its ability to detect, investigate and deter fraud and market manipulation of shares in the proposed Wise Origin Bitcoin Trust.

The Exchange is expecting to enter into a surveillance-sharing agreement with Coinbase, an operator of a United States-based spot trading platform for Bitcoin that represents a substantial portion of US-based and USD denominated Bitcoin trading.

CBOE’s filing adds that the agreement with Coinbase is expected to carry the ‘hallmarks of a surveillance-sharing agreement.’ This will give CBOE supplemental access to Bitcoin trading data on Coinbase.

The stock exchange also added that Kaiko Research data indicated that Coinbase represented roughly 50% of the U.S. dollar to Bitcoin daily trading volume in May 2023. This is pertinent given the SEC’s misgivings over the depth of BTC markets to back ETF products.

A surveillance-sharing agreement is intended to ensure that exchanges and regulators are able to detect whether a market actor is manipulating the value of stocks or shares.