The Power of ExxaBlock Crypto Daily Report — Part 2
CME Bitcoin Weekly Commitment of Traders: Futures + Options
Found on Page 1 of ExxaBlock & BitBoy Daily Crypto Report are two powerful charts…The Commitment Of Traders. We are going to go through this chart so our users of this report can gain the most value possible. This data is published by the CFTC (The Commodity Futures Trading Commission), which is an independent agency of the US government created in 1974. It regulates the U.S. derivatives markets, which includes futures, swaps, and options. It publishes this report to provide understanding of what is going on behind the scenes in the USA regulated derivatives markets. There are even those who have trading strategies specifically focused on the COT Report.
First Chart
- Data is aggregated on a weekly Basis. X Axis
- Colored — Traders in Financial Futures and Options. Who are the market participants?
- Long — Short — Spread Positions. Counted on the Y axis
Chart 2
- This counts the total traders in the at the CME
Market Participants
As a trader, it is always important to think about who we are in the grand scheme of a market. Who are we trading against, who are the other market participants and how do we fit into this picture. The business (CME in this example) does self-report the category of trader classification so we can understand who the market participants are. In turn, we might be able to guesstimate a possible reason for open position if we know what the trader is in the business for. But this graph DOES NOT show reasons why a specific trader placing a trade, this is a learning tool for our customers, we can never really know such information. These participants will either be placing a speculative trade or a hedging trade. The trader classification is separated into “Buy Side” and “Sell Side”
- Dealer/Intermediary
Dealers and Intermediaries are participants which can be described as “Sell Side” participants. This does not mean they literally sell futures contracts to other market participants. These participants can be Commodity Pool Operators, Commodity Trading Advisers, Futures Commission Merchants or Introducing Brokers to name a few.
These participants are more than likely selling the Options or Futures or offsetting risk from the products they sell (Spot Crypto, for example) by purchasing or selling futures contracts. These participants can include large banks, and those selling cryptocurrencies, swaps and other crypto derivatives. Hypothetically, this could be dealers such as Coinbase, Gemini, Robinhood, those who sell Bitcoin and other spot products to traders.
2. Asset Manager/Institutional
Asset Managers are “Buy Side” Participants they are providing a product like a fund to their customers. Think Grayscale Bitcoin Trust. In other markets these participants include pension funds, insurance companies, mutual funds and investment managers.
These traders might purchase or sell a futures or options position to lock in a specific price of Bitcoin, which we know is VERY volatile. When in the span of a single day an assets price could move 20% or more, being able to lock in a price is a very effective tool to have in your pocket as a asset manager or institution.
3. Leveraged Funds
Leveraged Funds tend to be hedge funds, money managers or perhaps proprietary trading firms. Leveraged funds also fit into the “Buy Side” of the market, as they are buying positions. These are traders who are most likely taking speculative positions or have strategies where they need to hedge risk.
4. Other Reportables
Other Reportables are traders who don't fit into the above categories. Interestingly these are most likely businesses using futures or options to hedge risk, in this case to hedge against the volatility of BTC. The Definition: “This category includes corporate treasuries, central banks, smaller banks, mortgage originators, credit unions and any other reportable traders not assigned to the other three categories”. Although in regards to Bitcoin it is more likely those mining bitcoin, or those who accept Bitcoin as a part of their business income
5. Non-Report
This is simply those who aren't reporting.
The Long, Short and Spread Positions
A Benefit of these contracts is trader does not have to put up the whole $300,000 to purchase these contracts. Traders are allowed a larger amount of leverage in these markets.
There are an unbelievable amount of ways to use futures and options contracts. By pairing long, short or spread positions at different prices with outright spot Bitcoin purchases or sales, the number of options are unlimited. You can have strategies which hedge risk (limit) in the market or you can take speculative directional positions and add risk to your portfolio. This is a massive topic in itself, and we will write on these in another post. Here is an example of just the Options strategies, and a Futures trading strategies from the CME.
So what does it all mean?
Knowing who we are taking positions with (or against) is unbelievably important. The reason we placed these metrics in our report was we wanted to address the many market participants and the more advanced types of positions they might be taking. Many who are just getting into the crypto space look only at spot price of bitcoin when there are many more markets to account for beyond just spot markets. Below is a broad overview of the total market.
For many regulated companies in the USA the CME regulated futures and options contracts are the only way to take positions in the crypto space. These are large market participants who have a lot of money and a lot of power in the crypto space.
To summarize, these charts are regulated reports who summarize market participants and the positions they take. ExxaBlock wants our readers to think of WHO is taking positions in the regulated markets and WHY are they possibly taking positions. Food for thought.
