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How Crypto Markets Have Made the Jump to Established Asset Class

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Crypto Markets

Jim Iuorio, for CME Group


  • The recent launch of Micro Bitcoin futures follows the success of the larger contract, which has grown tenfold in less than five years
  • Despite recent decline, ether continues to grow as a percentage of crypto market share, confirming that there is room for more than one dominant coin

Things have changed. Cryptocurrency has slowly made the jump from being a fringe concept dominated by young tech enthusiasts to a viable alternative asset class held by many blue blood U.S. institutions. This transition started slow but has recently picked up considerable steam. In fact, a recent headline announced an actual sovereign nation (El Salvador) as recognizing bitcoin as a legitimate and legal tender.
This particular milestone is interesting in that the commonly held belief was that governments would be opposed to cryptocurrencies and eventually attempt to regulate them out of existence. The existence of an alternate means of exchange, outside sovereign fiat currencies, seems like it should be cause for alarm, and the fact that this hasn’t happened yet is somewhat confusing. Recently, Senator Elizabeth Warren gave a speech in which she aggressively stressed the need to regulate cryptocurrencies, but it seemed to gain little traction.

Bitcoin and Ethereum Futures

Of the milestones that have marked the growth and transition of cryptocurrencies, none are greater than CME Group’s launch of futures contracts in both bitcoin and ether. Yes, there are plenty of global exchanges that preceded the CME’s involvement, but none have the stringent regulatory history of CME nor do they have the long track record of offering deeply liquid institutional derivative products.

Since the first Bitcoin futures contract launched in 2017, its growth has been tenfold in less than five years and currently trades almost $5 billion in notional value per day. The Bitcoin and Ether futures contracts are geared more toward institutional use and their growth both mirrors and fuels their increases in adoption.

One phenomenon that has sparked curiosity was the fact that notional volume in futures and other derivatives exceeded cryptocurrency spot volume during the massive correction occurring in May. Part of this is a natural desire to avoid capital gains taxes in long held crypto but it also underscores the existence of huge institutional involvement already participating in the space. The recent launch of CME Micro Bitcoin futures contracts, designed for both institutions and sophisticated, active traders, is already showing promise in creating a complementary marketplace where liquidity could thrive.

Ether Gains Market Share

Even as recently as seven months ago it seemed that bitcoin’s lead over ether in the crypto world was insurmountable. Bitcoin accounted for 70% of the total cryptocurrency market, fueled in part by big names like Stanley Druckenmiller and Paul Tudor Jones expressing positive sentiment. Since that time bitcoin’s dominance has dwindled. Bitcoin now accounts for 40% of the total crypto market while Ethereum has moved up to 15%.

Year to date performance in both assets reflects the growing interest in ether. Since January 1, bitcoin is up 41% while ether has rallied a staggering 255% in the same time period. Of course, there are some key differences in the technology of the two cryptos that may have driven investment into ethereum from bitcoin, or it may just be a desire to diversify. Either way, the new landscape confirms that there is room for more than one dominant coin.

Although it seems impossible to predict price movements in such highly volatile assets a couple things seem true: The first and most obvious is that new participants mean new buyers, not sellers and this, by definition, drives prices higher. Second, as each month passes without significant opposition, crypto becomes more entrenched.

Finally, I believe it’s folly to assume that because there are two current leaders in the space that the question of what coins will survive is settled. Things move fast in the crypto world.

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