Bitcoin futures may be more important than many in the market appreciate, according to JPMorgan Chase & Co.
Recent reports from cryptocurrency asset manager Bitwise and the Blockchain Transparency Institute indicate that only a small percentage of reported trading may be authentic. If only around 5% of reported May trading of US$725-billion is genuine, it would imply that the actual volume of bitcoin trading on cryptocurrency exchanges in the month was around $36-billion, JPMorgan strategists led by Nikolaos Panigirtzoglou wrote in a report on Friday, working with data from Coinmarketcap.com.
That compares to an estimated aggregate volume of $12-billion on the CME and Cboe futures contracts, JPMorgan said, itself a jump from April’s $5.5-billion and a first-quarter 2019 monthly average of $1.8-billion.
A major implication of this is that “the importance of the listed futures market has been significantly understated”, Panigirtzoglou wrote. “The report by Bitwise credits the traded futures as an important development in allowing short exposures that enabled arbitrageurs in properly engaging in arbitrage, and that the futures share of spot bitcoin volumes increased sharply in April/May.”
Bitwise said in the report filed with the US Securities and Exchange Commission in March that some exchanges inflate their trading volumes to appear higher in rankings, which can attract more users and generate fees. CoinMarketCap.com, which is one of the biggest aggregators of cryptocurrency market data, said at the time that concerns over inaccuracies “are valid”.
“The overstatement of trading volumes by cryptocurrency exchanges, and by implication the understatement of the importance of listed futures, suggests that market structure has likely changed considerably since the previous spike in bitcoin prices in end-2017 with a greater influence from institutional investors,” JPMorgan said. — Reported by Joanna Ossinger, with assistance from Olga Kharif, (c) 2019 Bloomberg LP