DeFi Craze Slashes Open Interest In CME Bitcoin Futures As Market Alarmingly Declines
As DeFi, commonly known as Decentralized finance, continues to capture incoming investors within the cryptocurrency market, some other parts of the markets are experiencing a pullback in interest. The effects of DeFi have now reached the Chicago Mercantile Exchange (CME) which is recording sharp repression in open interest positions. Open interest in CME’s Bitcoin futures as of Friday was down by a staggering 64%. Data from data analytics platform Skew is informing that the decline which has landed the price at $345 million, is the lowest it has been since the 4th of May this year.
This is a significant decline from its record-breaking high of $948 million as of August 17th, 2020. It is apparent that the decline didn’t happen all at once, hence the assertion that as the interest in DeFi rises with full force, the spotlight is taken away from other parts of the market as institutional actives are signaling strongly, that investors are highly bullish on DeFi.
The rest of the data from Skew once again highlights the massive difference in institutional interest towards DeFi between the last two months, when DeFi’s value was on the rise, despite Bitcoin’s range-bound price below $12,000, the total position of Bitcoin futures within all cryptocurrency exchanges hit $3.6 billion on Friday, which is yet again another significant drop from its $5.7 billion peak on the 7th of August. This decline is interestingly coming after CME’s open positions for Bitcoin futures was taking a recovery turn from its range-bound level of $500 million between May and July. Between August and September, open interest was above that mark and headed towards $1 billion until the decline that preceded the new month of October.
Are Investors Substituting Bitcoin Futures for DeFi?
DeFi ultimately took off this year as interest rate surged side by side with total locked-in value, which is now tripled between the space of two months to $10.9 billion, hinting again that investors are either committing to DeFi out of FOMO or with the goal of profiting from the accumulated value.
Despite industry players like Changpeng Zhao warning that many DeFi platforms are not inherently valuable, Denis Vinokourov, head of research at London-based prime brokerage Bequant opened up to Coindesk saying that “Crypto money has gone into DeFi and yield farming, suppressing futures premium and making cash and carry trades unattractive for traditional/institutional investors.”
The crossover to DeFi fully took place in August when the interest rate in Bitcoin futures and premium futures began to dwindle tremendously. All of which contributed to the total premium futures across all exchanges taking a landslide from 12% to 2.5% in mid-August.
Evaluating the future of Bitcoin Futures requires an understanding of value returns. And as it stands, Bitcoin futures which is ultimately more about investors making calculated risks than it is about making a profit is hedging against DeFi which is swiftly doubling its value. Obviously, DeFi shows itself to be highly promising, and from now till the end of the year, institutional activities are more likely to be in favor of DeFi. Regardless, Bitcoin futures interest is bound to take rise as time goes on.