As ETF Inflows Surge, CME Launches Bitcoin Trading
CME plans to launch spot Bitcoin trading, introducing novel services like arbitrage and basis trading to a vast base of institutional clients.
While Bitcoin spot ETFs are turning around their post-halving doldrums to see rallying new inflows, the Chicago Mercantile Exchange (CME) has announced a plan to offer spot bitcoin trading to institutional investors.
Bitcoin spot ETFs have seen some minor turbulence over the last few weeks. Although the long-awaited financial instruments quickly saw billion-dollar inflows after the SEC first approved them in January, Bitcoin’s scheduled halving did introduce a conservative market dynamic lasting several weeks. However, by mid-May, these circumstances showed clear signs of change. As Grayscale began making a comeback from previous outflows, cash volumes reached a two-week high for the whole industry. This was accompanied by a telling canary in the coal mine for the spot ETF market as the state of Wisconsin’s pension fund disclosed that it put $160 million into the ETF.
A core argument for the use-case of the Bitcoin spot ETF was that it would allow entirely new revenue streams to get some skin in the game for Bitcoin, and it seems like that’s coming true: this pension fund is just one of the many institutional investors that would never have dreamed of putting so much money into cryptocurrency. With the SEC approving an instrument like the ETF, the calculus has changed. It’s not only these small and conservative investors that have been changing the calculus, as Morgan Stanley made shockwaves on May 17th when it revealed a $270 million investment. These investor reveals have boosted confidence in the market all around, and ETFs are trading at the highest levels in seven weeks.
These bullish sentiments have put a much-needed shot into Bitcoin’s arm, as its price has been steadily growing throughout the last week. In turn, Bitcoin has been growing in ways totally unrelated to the spot ETF, as the CME announced its plan to launch Bitcoin spot trading on its platform. The world’s largest futures exchange, the CME already leads the world in Bitcoin futures trading, but adding spot trading functionality would be a much more dramatic step. According to an initial report from the Financial Times, the CME is “aiming to capitalize on surging demand this year among Wall Street money managers to gain exposure to the cryptocurrency sector.” A well-integrated financial platform like the CME would be able to offer services that competing exchanges couldn’t, such as arbitrage and basis trading, providing a significant value-add over established crypto exchanges.
It’s probably for this reason that Coinbase, a leading exchange, saw its share price drop by nearly 10% when this report was first released. Most of the largest exchanges, such as it and Binance, are based outside the United States, which can significantly limit the types of trade actions that users can actually carry out. Considering that the CME only took its title as the world’s foremost Bitcoin futures trader in the past year, it has publicly been confident that its vast wealth of institutional connections and new options will give it a significant edge over the pre-existing market.
The Times added that the Chicago Board Options Exchange, a rival from the same city, had attempted to carry out a similar plan earlier this year but abandoned it due to a lack of regulatory clarity in the United States. Indeed, US regulation recently hit some setbacks, as President Biden has vowed to veto bipartisan legislation that would enable highly regulated financial firms to directly hold Bitcoin. It seems like that would be a substantial setback at first glance, as the CME would certainly qualify as one of the impacted firms. However, the CME has claimed that it would run its potential spot trading services through EBS in Switzerland, a jurisdiction with well-established norms for corporate crypto custody. However, such a workaround would surely be much more cumbersome than simply running operations directly from Chicago, which is probably why the CME has not given a clear timeline to implement this plan.
Small complications like this have been reminding us that Bitcoin has more hurdles in its future, and for all that, it has been resurgent in recent days. For example, analysts from CF Benchmarks used the CME’s own futures trading data to compile a report on Bitcoin’s near-term economic prospects, and this report claims that Bitcoin’s small successes are unlikely to transform into a runaway bull market in the near future. Although there are plenty of optimistic signs to be gathered from Bitcoin’s demand and current volatility, analysts couldn’t rule out the possibility of further minor pullbacks.
This data impacting Bitcoin’s actual value is also mirrored in the ETF market, which is a wholly separate entity for all its interrelatedness with Bitcoin. Vanguard, a leading investment advisor with more than $8 trillion in AUM, had controversially refused to launch a Bitcoin ETF under the tenure of CEO Tim Buckley. Therefore, when Vanguard announced that Buckley would be resigning, the Bitcoin community generated much excitement as BlackRock’s Salim Ramji was named his successor. Ramji was the head of BlackRock’s iShares division in Q1 2024 and was one of the direct leaders of that company’s successful ETF launch. Nevertheless, Ramji quickly dashed these hopes when he announced that he had no intentions of leading his new company to launch a competitor ETF. The market may be performing very well and attracting billions of investment dollars from all its target markets, but that doesn’t necessarily mean that all the biggest investment firms in the country are jumping to launch their own products.
Overall, however, all the signs from the Bitcoin market are looking very positive. The CME has clearly elucidated a plan to carry out spot trading even if US regulators drag their feet to the maximum level, and it is going to put these plans in motion. In a matter of months, the spot trading market for Bitcoin may be totally changed as a finance giant simply outcompetes traditional crypto exchanges using new services and powerful clients. A change like this will doubtless have certain unforeseen consequences for the world of decentralized finance, but it will also come with wild opportunities. How many times has Bitcoin’s value cratered due to the publicized collapse of a big exchange like Mt. Gox or FTX? With the CME in the spot trading business, all that will be ancient history. It’s anyone’s guess as to how long this transformation will take or what all it will entail, but nevertheless, one thing is clear: Bitcoin stands to benefit in a big way.
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How many spot btc etfsare there?