According to JPMorgan managing director Nikolaos Panigirtzoglou, the activity of the CME bitcoin futures contract has increased significantly throughout 2019 indicating that the demand for bitcoin and new options contracts for bitcoin is high.
CME bitcoin options futures contracts are agreements with no physical bitcoin deliver occuring. The graph below shows the volume of CME bitcoin options futures contracts throughout December 2019 and the start of 2020.
The cryptocurrency market has expanded over the past eleven years with the absence of significant institutional involvement. It was not until 2019, following the emergence of regulated custodial services and futures products, that institutions began to invest in bitcoin in serious amounts.
Over 2019, the institutional infrastructure supporting bitcoin noticeably strengthened, with the involvement of companies like Bakkt, CME, and existing exchanges such as Coinbase.
Ahead of the launch of CME’s new bitcoin options launch, Panigirtzoglou emphasized that there has been “unusually strong activity” in the futures market, demonstrating “high anticipation” from investors. This coincides with a steady increase in open interest in bitcoin throughout 2019.
Institutional demand is seen as critical for the long-term growth and price trend of bitcoin because it diverts the asset’s dependence away from retail investors.
Bitcoin is now being introduced to a broader investor base that hold more wealth than individual/retail investors. Coinbase CEO Brian Armstrong said:
Something like 90% of the money in the world is locked up in institutions, so this will likely drive a lot of demand for crypto assets.
An increase in demand for bitcoin by institutions could also further cement the image of bitcoin as a major store of value alongside traditional assets such as gold.
A growing demand for bitcoin from accredited and institutional investors will better position bitcoin to potentially evolve into a safe haven asset in the long-term.
Bitcoin is potentially superior to gold and to the US dollar as a global non-political standard of value and settlement because there will never be more than 21 million bitcoins and because Bitcoin is open and uncensorable.
For bitcoin to continue evolving, necessary infrastructure must first be put into place and for that, consistent increases in institutional demand is a clear support for this to occur.