The Newest Micro in Crypto

Hey Traders,

While many of us have spent the last 12 months Zooming in our sweatpants, Bitcoin was busy glowing up.

Courtesy of Statista

Everyone’s favorite crypto has packed on around 600% in the past year alone (See? Nobody’s gonna notice your Quarantine 15!) and set off what I can only describe as an explosion among investors looking to get in before the next big boom in digital currency.

But with Bitcoin up big, the O.G. crypto is starting to feel less accessible to many retail traders, who have started turning their gazes towards alternatives like Etherium, Binance Coin, Litecoin, or even the meme-inspired Dogecoin!

And if you — like me — enjoy trading derivatives like futures? Hoo boy, hold onto your wallet!

Cashing out on Bitcoin futures demands a significant margin requirement, thanks to the fact that CME’s Bitcoin futures are based on a contract unit of five Bitcoins — not an insignificant sum, with Bitcoin currently treading water between $50K – $60K.

Frankly, most Average Joe retail traders can pretty much count themselves out of the Bitcoin Futures market. Bummer!

Except … There may be a light at the end of the tunnel … (And no, I’m not talking about Dogecoin futures, or an impending Bitcoin crash!)

Enter Micro Bitcoin Futures

Making their market debut just last week, courtesy of the CME Group (Ticker: CME) , Micro Bitcoin futures boast a contract size of only 1/50 of their big brother Bitcoin. In other words, trading Micro Bitcoin futures only requires the capital equivalent of 1/10 of a Bitcoin. Still not exactly pocket change, but significantly more accessible for many retail traders.

Of course, don’t get it twisted. The Institutional Big Boys will also find these micro futures useful, both as a way to fine-tune their Bitcoin price exposure, or as a way to hedge their Bitcoin holdings.

I guess you could say there’s a little something for everyone!

Like traditional Bitcoin futures, Micro Bitcoin futures will be tied to the Bitcoin Reference Rate (BRR), which is based on aggregated information from a single hour of trading on major Bitcoin exchanges to calculate its daily final settlement price.

Because Bitcoin and Micro Bitcoin futures involve cash settlement, and don’t involve the exchange of actual Bitcoin, these futures contracts allow investors to gain some exposure to Bitcoin price movement without actually owning any of the cryptocurrency. 

They’re also subject to regulation by the Commodities Futures Trading Commission (CFTC), which may help ease the mind of some investors who are wary of getting their feet wet in the Wild West of Cryptocurrencies. And you don’t need a crypto wallet to get involved!

So how has the first week on the market treated the mini-crypto derivative?

Chart courtesy Thinkorswim

Interestingly, Tuesday seemed to see the highest enthusiasm for Micro Bitcoin futures, with north of 22,000 contracts crossing the line. After a brief drawback on Wednesday, volume picked up again on Thursday, and the week ended with 21,303 total contracts traded on Friday.

Chart courtesy of CME Group

Of the available futures, traders seem to be thinking “near term,” with the May 21 contract accounting for almost 98% of last week’s trading volume, or 78,643 total contracts traded through the week.

By comparison, only 30,637 May 21 Bitcoin futures contracts were traded last week. However, given the requirements to purchase a Bitcoin contract (remember, margin requirements are based on a five Bitcoin unit!), this still represents a greater capital commitment than we saw with this week’s Micro Bitcoin futures. 

To draw a further parallel between Micro Bitcoin and its full-sized predecessor, Friday’s trading session saw a volume of 21,303 Micro Bitcoin contracts. This may seem to far outstrip the “paltry” 2,370 Bitcoin futures contracts that were traded during its first Friday trading session back in 2017, but the difference in pure volume is negated when you consider the amount of underlying Bitcoin associated with each type of contract.

Overall, as the market warms up to the idea of Micro Bitcoin futures, and as demand for crypto-based trading vehicles grows, Micro Bitcoin futures may be in a prime position to gain a solid audience among retail traders.

That being said, if Micro Bitcoin futures do in fact gain traction among the masses, I’d be interested to see if the door opens for even more accessible crypto derivatives to enter the market!

Only time will tell, but I’ll be keeping an eye on these futures!

Your Only Option,

Mark Sebastian 

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