What the flippening? Major institutional players seem to be driving latest crypto rally

A flippening has happened.

No not *the* flippening. ETH hasn’t overtaken bitcoin’s market capitalization. Nor has solana surpassed ether’s. In a somewhat quieter development, the financial services giant CME Group recently witnessed its open interest tied to bitcoin and ether surpass those of Binance for the first time. CME is perhaps the TradFi world’s most notable of crypto success stories. In 2017, the firm, known for trading trillions of contracts in derivatives, introduced its market for bitcoin futures. Since then, it has shown consistent growth, defying the challenges encountered by many institutional ventures that emerged around the same time, such as rivals Cboe and ICE’s Bakkt. Presently, CME’s open interest for its bitcoin market exceeds that of Binance with over 111,000 BTC compared to Binance’s 106,000.

This achievement not only impresses but also highlights the current market’s peculiar state, balancing between institutionalization and its still early stages. Following the 2022 credit crisis, which I’ve extensively discussed in this column, the structure of the crypto market has been in disarray. Liquidity, until recently, remained scarce. Moreover, major sources of institutional wealth — like RIAs, FAs, and many large hedge funds — have mostly remained on the sidelines. And the lending market is still fairly dry. Despite this, the market activity at CME indicates the substantial involvement of institutions in driving this rally. While individual investors may be participating, it’s the significant players providing crucial liquidity support.

As my friend Laura Vidiella put it on LinkedIn, “if anyone is adding new players to this space these days it’s CME.”

And the data backs this up.

(Hat tip to my colleague Rebecca Stevens for checking the chain.)

CME bitcoin futures

CME’s bitcoin futures market saw volumes increase to $57 billion in October from $34.6 billion in September, representing an increase of 65%, according to data compiled by The Block. Meanwhile, Coinbase’s market (lest we only beat up on Binance) saw its spot market increase during the same period by 52%, indicating, at least in my view, that the institutions are diving into the market at a quicker pace compared to retail. To be fair, Coinbase is just as much an institutional powerhouse as it is a retail broker — at least by crypto standards — and, if I were to guess, it’s institutional clients drove much of that spot volume growth.

For me, this indicates that the rally isn’t just a momentary surge but has sustained momentum. Investors with well-thought-out strategies are actively deploying capital, likely for the long haul. Additionally, according to our friends from Bitwise, the current price action doesn’t seem to incorporate the pricing of an exchange-traded fund. It’s important to note, this isn’t financial advice, and I strongly recommend consulting your financial advisors before making any portfolio decisions. However, this market rally feels distinct from previous ones. It’s not driven by venture capitalists chasing FOMO or retail investors rushing into ICOs; rather, it’s being propelled by major institutional players. What’s intriguing is that most of these significant players have yet to fully participate.

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