ETFs helped ‘legitimize’ bitcoin ahead of halving: Q&A

CME continues to see strong demand for bitcoin after the approval of spot bitcoin ETFs.

Ahead of the halving, CME’s head of crypto Giovanni Vicioso spoke to Blockworks about the new ETFs, the overall crypto market and the upcoming halving.

Vicioso previously told Blockworks that it was still seeing demand for crypto even after the Securities and Exchange Commission went after a number of crypto companies in 2023.

“More and more, you’re seeing clients, institutional clients, really start thinking more about the technology that underpins both bitcoin and ether, and they certainly see a lot more conversations on how that underlying technology can really drive innovation — things like tokenization for example…and I think that that’s really what’s driving interest in our products as well,” Vicioso told Blockworks in July of last year.

That demand, thanks to bitcoin touching fresh all-time highs and the January approval of the aforementioned ETFs, continues to hold steady.

Here’s what he told Blockworks.

Blockworks: The bitcoin ETFs were launched just a few months ago, what kind of impact has it had on CME?

Vicioso: Since the launch of the spot bitcoin ETFs in the US, we’ve seen a sizable jump in terms of book volume and open interest. If we quickly look at our volumes so far, this year, cryptocurrency futures volume is averaging close to over 75,000 contracts. That’s more than double the [average daily volume] that we saw over the same period last year, and we’re trading close to $5 billion per day across the suite, more than and two times what we saw last year.

What I will add, though, around what we’re seeing with the introduction of the spot bitcoin ETFs in the US, it’s not something that’s happened by chance. We’ve been building this market since 2016. With the introduction of the CME and CF benchmarks, bitcoin reference rate, and the introduction of futures in December of 2017, those products serve as the bedrock on which the ETFs are built.

I think that the ETFs are only really scratching the surface. We still haven’t seen some of the IRAs or sovereign funds get into this space. We’ll begin to see who’s actually investing in this space once the quarter ends and the 13Fs are filed.

Blockworks: All in all, it sounds like there’s a lot of appetite for your products?

Vicioso: Absolutely. The fact is that six of the 10 [bitcoin ETFs] are benchmarked to the CME and CF bitcoin reference rate in New York. If we take a look at the volume that we’re seeing, just in the 3 pm to 4 pm New York window, you know, [earlier this month] as an example, we averaged about a billion dollars a day in that hour alone, right?

By comparison, last year we averaged about $1.6 billion per day, on average for the entire year. Earlier this month, we traded over a billion in just that one hour. Close to 20% of our volume is now transacted in that hour so there’s been a shift because the most popular hour used to be 3 pm to 4 pm London time, which coincides with the completion of the Bitcoin reference rate.

Blockworks: Let’s talk about scale. What’s it been like to go to $1 billion traded in an hour versus the $1.6 billion figure that you cited?

Vicioso: We’re averaging close to $5 billion a day. So certainly, the capacity for us to handle size is there. We offer reliable, regulated, highly liquid markets. If you look across the six other asset classes that CME covers, the e-mini S&P is trading on average $200 billion to $300 billion per day on that contract alone. The scale, or the ability for that type of volume or for the volume that we’re currently seeing on our crypto suite, is there to support a lot more.

Blockworks: How do you think new ETFs, whether it’s an ETH ETF or another crypto ETF, will impact how CME approaches crypto?

Vicioso: We currently list ether futures. We have both standard contracts as well as micro contracts. We launched ether/bitcoin ratio futures just last July. And the story last year was was was all about bitcoin, right? A lot of it was driven by the anticipation of the approval of a spot ETF, so if you look at last year, bitcoin outperformed ether 11 out of 12 months.

So far this year, ether has outperformed bitcoin every month so far this quarter. I think what we’re seeing there part of that is anticipation of the potential approval of a spot ether ETF, but some positive narratives are occurring with ether based on some of the developments for that particular blockchain that are now becoming more scalable.

I think that there’s there’s good investor interest in something like in any potential ether ETF as well. Now, in terms of other ETFs, in our case we do list reference rates and real-time indexes covering a little bit more than 20 different coins and tokens, but in terms of introducing any additional futures, we need to see a bit more regulatory clarity before we move in that direction.

Blockworks: Are you seeing more optimism going into this halving than previous halvings?

Vicioso: Yeah, it’s interesting to see what’s happening right now. Is the price of bitcoin up for example, because of the existence of the ETFs or is it the opposite? Is price action in bitcoin driving, say, some of that interest in any ETFs? I think both of these things work together, where they help to continue to build that momentum.

And there’s certainly been a lot of enthusiasm for the ETFs. We see new participants coming into the market and that’s helping those products to grow and I think it’s also helping price movement. And then of course, you throw in the halving and people start thinking about what’s happened in the past and they’ll think that this may repeat in the future. And it creates that proverbial snowball effect, if you will, where it keeps growing. But that remains to be seen.

Blockworks: Do you think post-halving you’ll see more enthusiasm, or do you think momentum will die down after?

Vicioso: I think it’s difficult to speculate, right? But when you see how much the market has grown, and you see how bitcoin’s dominance is getting stronger — it represents more than half of the overall cryptocurrency market cap — I think it’s just gotten too big to ignore. You hear some of the messaging that, for example, ETF providers are promoting in terms of allocating toward bitcoin. And that is just going to attract more interest. So I think it’s just a market that’s grown too big for investors to ignore.

Blockworks: When you’re having conversations with CME customers, can you enlighten us about the tone and general takeaways from those meetings?

Vicioso: If we go back to when we first launched the [crypto] product and we engaged with clients about interest in bitcoin, there was a lot of concern initially. Looking back at 2016-2017, firms didn’t quite understand what bitcoin was and didn’t necessarily appreciate the use case. But fast forward to conversations that we’ve had more recently and currently, we’re hearing more and more firms talking about things like tokenization. They’re also considering ways that they can implement some of that technology.

So there’s been a real shift, and I’d say a positive shift, right, where institutions are now really considering not just trading cryptocurrencies, but also adapting the technology. Ultimately, I think, it’s about the use case that something like Bitcoin, or Ethereum bring to the table. That’s what drives value. And as that technology gets put into play, it’ll continue to drive interest in terms of other coins as well.

Blockworks: Do you think the SEC’s approval of the bitcoin ETFs and the way that they approached the approval, reassured institutions?

Vicioso: I think they do help to further legitimize the space, much like we did when we introduced bitcoin with a reference rate in 2016 and then futures in 2017. But having some of these well known names now also on the space just helps to bring more competence and attract interest in these types of products.

Blockworks: When you’re sitting down with your team, what do you guys look forward to this year?

Vicioso: We’re looking forward to continuing to grow and speak to clients to help them understand how they could use our products to help them manage some of this associated risk and gain exposure through our products

This interview was edited for brevity and clarity.

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