CME Bitcoin futures hit record high, but uncertainty looms above $36K

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Bitcoin futures open interest at the Chicago Mercantile Exchange (CME) hit an all-time high of $3.65 billion on Nov. 1. This metric considers the value of every contract in play for the remaining calendar months, where buyers (longs) and sellers (shorts) are continually matched. 

Bullish momentum on CME Bitcoin futures, but cautious BTC options markets

The number of active large holders surged to a record 122 during the week of Oct. 31, signaling a growing institutional interest in Bitcoin (BTC). Notably, the Bitcoin CME futures premium reached its highest level in over two years.

In neutral markets, the annualized premium typically falls within the 5%–10% range. However, the latest 15% premium for CME Bitcoin futures stands out, indicating a strong demand for long positions. This also raises concerns, as some may be relying on the approval of a spot Bitcoin exchange-traded fund.

Contradicting the bullish sentiment from CME futures, evidence from Bitcoin options markets reveals a growing demand for protective put options. For instance, the put-to-call open interest ratio at the Deribit exchange reached its highest levels in over six months.

Deribit Bitcoin options put-to-call ratio. Source: Laevitas

The current 1.0 level signifies a balanced open interest between call (buy) and put (sell) options. However, this indicator requires further analysis, as investors could have sold the call option, gaining positive exposure to Bitcoin above a specific price.

Regardless of demand in the derivatives market, Bitcoin’s price ultimately relies on spot exchange flows. For instance, the rejection at $36,000 on Nov. 2 led to a 5% correction, bringing the price down to $34,130. Interestingly, the Bitfinex exchange experienced daily net BTC inflows of $300 million during this movement.

As analyst James Straten highlighted, the whale deposit coincided with the fading momentum of Bitcoin, suggesting a potential connection between these movements. However, the downturn did not breach the $34,000 support, indicating real buyers at that level.

Bitcoin’s latest correction occurred while the Russell 2000 Index futures, measuring mid-cap companies in the United States, gained 2.5% and reached a two-week high. This suggests that Bitcoin’s movement was unrelated to the U.S. Federal Reserve’s decision to maintain interest rates at 5.25%.

Additionally, the price of gold remained stable at around $1,985 between Nov. 1 and Nov. 3, demonstrating that the world’s largest store of value was not affected by the monetary policy announcement. The question remains: how much selling pressure do Bitcoin sellers at $36,000 still hold?

Reduced Bitcoin availability on exchanges can be deceiving

As demonstrated by the $300 million daily net inflow to Bitfinex, merely assessing current deposits at exchanges does not provide a clear picture of short-term sale availability. A lower number of deposited coins may reflect lower investor confidence in exchanges.

Apart from legal challenges against the Coinbase and Binance exchanges by the U.S. Securities and Exchange Commission for unlicensed brokerage operations, the FTX-Alameda Research debacle has stirred more concerns among investors. Recently, U.S. Senator Cynthia Lummis called on the Justice Department to take “swift action” against Binance and Tether for their alleged involvement in facilitating funds for terrorist organizations.

Related: SEC seeks summary judgment in Do Kwon and Terraform Labs case

Lastly, the cryptocurrency market has been impacted by increased returns from traditional fiat fixed-income operations, while the once lucrative cryptocurrency yields vanished following the Luna-TerraUSD collapse in May 2022. This movement has had lasting effects on the lending sector, leading to the collapse of several intermediaries, including BlockFi, Voyager and Celsius.

At the moment, there is undeniable growing institutional demand for Bitcoin derivatives, according to CME futures data. However, this may not be directly related to lower spot availability, making it difficult to predict the supply between $36,000 and $40,000 — a level untested since April 2022.