After the first week I gave the CBOE’s Bitcoin Futures contract a grade of C-.
That contract has been trading for 3 weeks and the CME’s contract has now been trading for 2 weeks and I think my initial grade may have been generous.
Open interest in the two contracts is really disappointing to me. The January CBOE contract has open interest of 2,828 contracts as of December 29th. That open interest has barely risen from where it ended its first week (1,730 contracts). The CME’s contract has finished its first two weeks with open interest of only 498 contracts (the CME contract does represent 5 bitcoins so is 5 times as large as the CBOE contract). In any case, given the amount of hype surrounding bitcoin and how this product would promote new access – the numbers seem very low. I cannot remember a futures contract that launched with more awareness than these contracts, yet they aren’t able to generate significant open interest.
Trading volumes also seem low to me. Some of that can be explained by last week being a holiday week across much of the Western world – but I wouldn’t have expected something as global as bitcoin to succumb as much as it did. Average trading volume on the front contract on the CME has been 932 contracts. The CBOE’s has been a slightly more robust 3,387 daily trades (though adjusted for contract size, they are similar notional dollar amounts).
What should concern Bitcoin Bulls the most is that most of that volume occurred on December 22nd – a bad day for Bitcoin. On the CME, Bitcoin started the day above $15,500 and plummeted to a low of $12,265. Bitcoin itself, according to Bloomberg ‘flash crashed’ to a low of $10,775 on that day and the CBOE contract traded to $11,300 – extreme divergence. The CBOE exhibited a ‘normal’ volume acceleration on a down day. It had 12,554 Jan. contracts trade that day while the CME had 2,374 Jan. contracts trade that day – triple and double the average volume, respectively.
These contracts and the asset class itself seem to be behaving like any normal overbought asset – hardly encouraging for future price action.