JPMorgan Says Importance of Bitcoin Futures Has Been Understated

(Bloomberg) -- 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 $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 Friday, working with data from Coinmarketcap.com.

That compares with 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 U.S. 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.

--With assistance from Olga Kharif.

To contact the reporter on this story: Joanna Ossinger in Singapore at jossinger@bloomberg.net

To contact the editors responsible for this story: Andrew Davis at abdavis@bloomberg.net, Keith Gosman, John McCluskey

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