Key Points
- CME Group futures exchange plans to launch Bitcoin spot trading.
- The move comes amidst surging demand for crypto exposure among Wall Street companies.
CME Group, the Chicago-based largest futures exchange in the world, plans to launch Bitcoin spot trading as a move to capitalize on the rising demand for crypto exposure coming from Wall Street firms.
According to the Financial Times, citing people familiar with the matter, the exchange has been in discussions with traders who want to buy and sell crypto on a regulated marketplace.
The plan has not been finalized yet, but if it becomes reality, this would mark a step ahead by important Wall Street institutions to enter the digital asset sector, following the approval of the US SEC of spot Bitcoin ETFs back in January.
Stock market funds investing directly into Bitcoin turned out to be a great success in the US. Hong Kong followed suit with the start of trading for Bitcoin and Ethereum ETFs back in April.
BlackRock, which launched its spot Bitcoin ETF, IBIT, recently highlighted the huge opportunity that the crypto products have, predicting that a new wave of interest from a different type of investors will hit the market.
According to the financial giant, the next months will probably see financial institutions such as sovereign wealth funds, pension funds, and endowments starting to trade Bitcoin ETFs.
Spot Bitcoin trading on CME could bring new investment opportunities
Financial Times also noted that introducing spot Bitcoin trading on CME which is already hosting trading in Bitcoin futures, would allow investors to place easier so-called basis trades.
Basis trading is a common strategy among professional BTC traders and a staple of the US Treasury market. It involves borrowing money to sell futures while buying the underlying asset, and extracting gains from the small gap between the two.
The bulk of the Treasury basis trade takes place on CME venues. CME caters to hedge funds and proprietary traders and it has about 26,000 open positions with about $8.5 billion on its Chicago market.
Important hedge funds such as Bracebridge Capital and pension funds including Wisconsin Investment Board are some of the large investors that have poured over $10 billion of assets into crypto products of BlackRock, Fidelity, and Ark.
SEC filings show that the State of Wisconsin Investment Board currently holds $99 million in BlackRock‘s Bitcoin ETF, IBIT.
Recently, Bloomberg analyst, Eric Balchunas addressed the holdings of Wisconsin Investment Board via his X account, highlighting that a state pension bought IBIT in Q1 2024.
He noted that normally, we don’t see big institutions investing in 13Fs for a year or so when the ETFs get more liquidity, but these “are no ordinary launches.”
Wow, a state pension bought $IBIT in first quarter. Normally you don't get these big fish institutions in the 13Fs for a year or so (when the ETF gets more liquidity) but as we've seen these are no ordinary launches. Good sign, expect more, as institutions tend to move in herds https://t.co/leKVe2CK1S
— Eric Balchunas (@EricBalchunas) May 14, 2024
Blachunas expects more institutions to follow suit and invest in crypto products.
