JP Morgan expects a lot of interest in CME's new Bitcoin options contracts
Activity on the underlying Bitcoin futures contracts launched in December 2017 is up 69% since end of last year
The launch of new Bitcoin-related options contracts on the world's biggest derivatives market, the Chicago Mercantile Exchange, on Monday is attracting significant interest from institutional investors, according to JP Morgan Chase.
While a consortium known as Bakkt, which includes New York Stock Exchange parent Intercontinental Exchange, began offering options last month, volumes and open interest have been “rather small”, strategists led by Nikolaos Panigirtzoglou said in a note on Friday. Given CME already enjoys a dominant position in trading Bitcoin futures on regulated exchanges, this new offering may change things, they said.
“There has been a step increase in the activity of the underlying CME futures contract,” over the past few days, Panigirtzoglou wrote, noting that open interest has increased 69 per cent from the end of 2018, and that the number of large open-interest holders has grown.
“This unusually strong activity over the past few days likely reflects the high anticipation among market participants of the option contract.”
Introduction of new Bitcoin contracts has a mixed track record. At times, it has appeared to be a drag on the price, such as when ICE debuted its new futures contract in September. And the price peak around $19,000 in December 2017 occurred just as CME and Cboe Global Markets launched futures on the world’s largest cryptocurrency.
Bitcoin was up 3.9 per cent to $8,064.62 at 10.04pm UAE time on Saturday, according to the Bitstamp exchange.
Separately, Bitcoin’s intrinsic value has been rising, but remains below the market price following a significant divergence in the middle of last year, the report said. JPMorgan calculates intrinsic value by treating Bitcoin as a commodity and looking at the marginal cost of production, including computational power employed and cost of electricity.
“The market price has declined by nearly 40 per cent from its peak while the intrinsic value has risen by around 10 per cent,” Panigirtzoglou wrote. However, he added that “the gap has not yet fully closed, suggesting some downside risk remains”.
Updated: January 11, 2020 10:59 AM