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Many asset classes did surprisingly well in 2020, but crypto in particular stood out.  Although not a precious metal, the recent price action of bitcoin may mean it is increasingly perceived as a hedge against future inflation risk. 

What's Different This Time?

As bitcoin moved higher throughout the year, the question was asked, “What makes bitcoin different now than the rallies of 2013 and 2017?”

The biggest difference between this rally and past moves is that institutional investors are starting to buy in, and this is seen as a crucial confidence boost for the bitcoin market. The launch of CME Bitcoin futures in 2017, and options in 2020, has helped spark institutional interest, and allows investors to gain exposure to bitcoin without the regulatory, tax and custody issues facing the physical market.

According to Tim McCourt, CME Group’s Global Head of Equity Index and Alternative Investment Products, CME Bitcoin futures volume rose 114% in December 2020 compared to 2019. Likewise, open interest increased 252% over the same period, driven largely by institutional investors.

“We’re certainly seeing balanced participation from all the segments in Bitcoin futures, but it’s hard to deny that institutional adoption is continuing to increase,” McCourt said in our discussion (watch above).

Bitcoin Correlation?

Usually, bitcoin and stocks do not always correlate. But as with gold, there may be periods, especially when inflationary fears are present, when the two assets appear to be correlated. This relationship is more an indication of general risk appetite working its way into the market rather than a defined connection. 

Bitcoin generally does not correlate with other assets due to being a unique asset class of its own. Weakness of the U.S. dollar and easy monetary conditions by central banks have created a prolonged low interest rate environment that has had a great effect on the digital asset.

Both bitcoin and gold share a relationship when it concerns currency debasement and fears of inflationary pressure.  They also share similarities in the fact that there are finite amounts for both assets, with bitcoin only having 21 million coins once all mined (currently, around 18.5 million have been mined).

In mid-2020, as fiscal and monetary stimulus were used as tools to fight against the pandemic, gold and bitcoin reacted accordingly with significant moves higher as the dollar moved lower. But the two markets decoupled in October. One driver behind the decoupling was when CME Bitcoin futures reached critical levels in open interest allowing institutions to participate.

By mandate, many institutions need consistent open interest to reach certain levels before they can participate. As gold started to move sideways, capital which would have normally found a home in gold went into bitcoin. This fueled a rapid move over $40,000.

Among the market lessons in 2020, we learned there is a home for digital assets in modern portfolio theory. Ether is the next digital asset to be listed as a futures contract. And with different applications than bitcoin, it is likely to be closely watched by traders of all types, having already seen a surge in cash markets. As for bitcoin, its reputation as a potential store of value continues to grow.



OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance and economics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.

All examples are hypothetical interpretations of situations and are used for explanation purposes only. The views expressed in OpenMarkets articles reflect solely those of their respective authors and not necessarily those of CME Group or its affiliated institutions. OpenMarkets and the information herein should not be considered investment advice or the results of actual market experience. Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade. BrokerTec Americas LLC (“BAL”) is a registered broker-dealer with the U.S. Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (www.FINRA.org), and is a member of the Securities Investor Protection Corporation (www.SIPC.org). BAL does not provide services to private or retail customers.. In the United Kingdom, BrokerTec Europe Limited is authorised and regulated by the Financial Conduct Authority. CME Amsterdam B.V. is regulated in the Netherlands by the Dutch Authority for the Financial Markets (AFM) (www.AFM.nl). CME Investment Firm B.V. is also incorporated in the Netherlands and regulated by the Dutch Authority for the Financial Markets (AFM), as well as the Central Bank of the Netherlands (DNB).

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