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The dollar value of open interest – futures contracts traded but not liquidated with an offsetting position – dropped to $1.36 billion, the least since Dec. 16, data from Skew show. The level has more than halved since mid-April, when the U.S-based Coinbase exchange debuted on Nasdaq. 

The number of open contracts also fell, sliding more than 22% in recent weeks to 36,265, according to data provided by Glassnode. These regulated standard futures contracts trade in 5 BTC denominations, require a large capital outlay and are considered synonymous with institutional participation.

“The CME was the favorite liquidity avenue for institutions to hedge their GBTC [Grayscale bitcoin trust] exposure,” Crypto finance firm Amber Group told CoinDesk in a Telegram chat. “However, ever since the GBTC premium eroded, there’s been a lesser impetus for these sort of flows.”

The Grayscale Bitcoin Trust (GBTC), from the crypto-asset manager Grayscale, is the largest U.S. investment vehicle for buying bitcoin (BTC) through a stock exchange. Accredited investors can buy shares of the trust at the net asset value, but aren’t allowed to sell them on the secondary market for six months. New York-based Grayscale is owned by Digital Currency Group, the parent company of CoinDesk.

Until February, GBTC shares traded at premiums as high as 40% to the price of bitcoin, attracting institutional investors who intended to redeem them at a premium six months later. They hedged the exposure with a short futures position on the CME. That pushed up the open interest on the CME, making it the biggest futures platform at the end of December.

“Institutions were hedging the outright delta [long GBTC exposure] and capturing the subscription premium,” Amber Group said. 

The trade lost its shine after the premium turned into a discount in February. The situation has persisted ever since, causing a decline in open interest on the CME.  

In addition, the price crash in May crowded out excess bullish leverage from the market, leading to a drop in open interest on the CME and other major exchanges. 

The amount deployed in futures contracts across the globe is about $11.9 billion, down from $19 billion a month ago. Bitcoin tanked 35% in May on concerns regarding the negative environmental impact of cryptocurrency mining and a regulatory crackdown in China. 

Futures contracts on non-regulated exchanges like Binance and Deribit trade in denominations of 1 BTC, a fifth the size of the CME’s, and are taken to represent retail activity. The CME launched micro bitcoin futures last month. A micro bitcoin is equivalent to 1/10th of one bitcoin.

The CME and other exchanges could continue to see low activity for some time, as the futures premium has declined with the recent price sell-off, making carry trades unattractive. 

Cash and carry arbitrage, a market-neutral strategy, involves buying an asset in the spot market against a short position in the futures market when the futures draw a significant premium relative to the spot price. That alllows traders to make a fixed return as the futures premium decays over time and converges with the spot price on the expiry date. 

Carry trades now offer significantly less yield than they did at the height of the bull market. Skew data show the CME currently offers an annualized rolling three-month basis (futures premium) of 3%, compared with 12% in mid-April. Other exchanges have seen a similar drop, with Binance futures drawing a premium of 8% against 42% in April.  

“The recent crash has depressed yields across the ecosystem,” Rahul Rai managing partner at Gamma Point Capital, said. “So carry trades have become less attractive, and there is less institutional demand to short futures against the long position in the spot market.” 

Also read: Bitcoin’s Bull Market ‘May Have Come to an End,’ Says MRB Partners 

Also read: Bitcoin’s Bull Market ‘May Have Come to an End,’ Says MRB Partners 

Bitcoin, the world’s largest cryptocurrency by market capitalization, was up Thursday by 1.7% as of press time. It was below the 10-hour moving average but above the 50-hour, a flat signal for market technicians. 

BTC’s price jumped from $37,311 at 05:15 UTC (10:15 p.m. ET Wednesday) to $39,402 by 13:30 UTC (6:30 a.m. ET) Thursday, a 5.6% gain based on CoinDesk 20 data. Bitcoin then settled somewhat, at $38,532 as of press time.

“We expect spot bitcoin to trade in a range short term with a slight bullish bias as frenzied leveraged longs have been washed out,” noted quant trading firm QCP Capital in its most recent investor note. “We’ve seen significant buying and selling at $30,000 and $40,000 levels, respectively.”

According to data aggregator Skew, the cost of perpetual swaps, which is liquidity provided to leveraged traders, has consistently hovered near zero (0%) since May 26.

It’s a sign many traders aren’t piling up leverage to go directional either way because the funding rates will pop or fall based on bull or bear orientation. 

“BTC tried to break $40,000 to break out of the $30,000-$40,000 range that we’ve been stuck in after the mid-May crash,” said Elie Le Rest, a partner at quantitative trading firm ExoAlpha. “So the $40,000 line seems to be breakable as market participants are regaining confidence after the big crash two weeks ago.”

On May 23, bitcoin hit a three month low of $34,259, while ether dipped to $2,080 that day.

Thirty-day volatilities in BTC (46%) and ETH (68%) have picked back up after having dipped to 2021 lows on April 15. Ether’s 30-day volume, for instance, went to a whopping 175% Tuesday before slipping while bitcoin’s seems to keep rising, at 92% as of Wednesday’s closing data. 

“We are still cautious of a potential BTC downside as the volatility skew remains high with puts being substantially more expensive than calls,” QCP Capital noted Thursday. “We reckon that downside vols are a decent sell.”

The steady rise in volatility comes after the big price dump for crypto on May 23, noted David Russell, VP of Market Intelligence at brokerage TradeStation Group.

“It’s natural to expect higher volatility after the kind of sell-off we got in late May,” said Russell. “It’s also normal for prices to pause and consolidate after a big move.”

The second-largest cryptocurrency by market capitalization, ether, was trading around $2,789 as of 21:00 UTC (4:00 p.m. ET), gaining 1.1% over the prior 24 hours. The asset is below the 10-hour moving average but above the 50-hour, a sideways signal for market technicians. 

Ether gained from $2,673 at 02:00 UTC (7 p.m. ET Wednesday) to $2,882 by 13:15 UTC (6:15 a.m. ET) Thursday a 7.8% climb based on CoinDesk 20 data. ETH has since lost some steam, at $2,789 as of press time.  

For the past five days, ether’s daily trading volume on major spot exchanges tracked by CoinDesk Research has been higher than bitcoin’s. It’s a stretch of consistency that goes back a month so far, as 14 days out of the last 30 saw ETH’s trading volume higher than BTC.

George Clayton, managing partner of investment firm Cryptanalysis Capital, says newer capital coming into the space might be looking at the prospects of ether over bitcoin for the future, leading to higher volumes. 

“Maybe ETH is seeing a bit more institutional flow,” Clayton said. “For institutions that have successfully fit crypto into their compliance frameworks and are already invested in BTC, ETH is the next step.”

The cost of “gas,” the fees paid in ether to use the Ethereum network, is near a three-month low. After spiking to an astounding 305 gwei median or middle price for interacting with the network on May 11, that price has slipped to as low as 24 gwei by May 30. Gwei is defined as one-billionth of one ETH so 1 gwei equals 0.000000001.

The drop in fees is a good sign that despite increasing usage of the Ethereum network, the costs are much lower than they have been in some time. This is especially true as ether’s price has been slowly trending up, which has historically caused fees to jump, noted TradeStation’s Russell. 

“Ether is already back near its early-May levels,” Russell told CoinDesk.

Digital assets on the CoinDesk 20 are mostly higher Thursday. Notable winners as of 21:00 UTC (4:00 p.m. ET):

Notable losers:

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