Most U.S. banks are not allowed to hold bitcoin directly. Despite this, CFTC data shows they are sitting on big post-election crypto gains.
According to data from the Commodity Futures Exchange Commission (CFTC) Wall Street banks started loading up on bitcoin futures a few weeks prior to the U.S. presidential election. Their timing was opportune, as the cryptocurrency surged from $62,000 to nearly $90,000 recently. According to the CFTC’s Commitment of Traders report from November 5, the brokerage units of big banks took long positions amounting to $3 billion in bitcoin futures at the Chicago Mercantile Exchange (CME). This massive bet equated to about 10,564 net new contracts, equivalent to a 52,820 BTC. The current position is by far the most bullish position taken by banks since the CME started offering this future on bitcoin in December 2017.
SEC regulations prohibit broker-dealers from owning bitcoin outright but they are allowed to hold derivative products including futures and exchange traded funds. Given that the average purchase price of each contract was for bitcoin at $65,800 Forbes estimates that, based on the recent high of nearly $90,000, banks may be sitting on a paper profit of as much as $1.4 billion.
While the identities of the bank-owned entities is not part of the weekly trader report published by the government’s futures regulator the largest bank-owned broker dealers operating in financial futures and crypto ETF markets include JP Morgan Securities, Goldman Sachs, and SG Americas Securities (a division of French-owned Societe Generale).
A Forbes analysis of the latest futures trader report shows that banks’ capital held as open interest – the term for money tied up in futures contracts – increased by $3.5 billion, from 1,200 bitcoin futures contracts (worth $373 million) on October 8 to 11,766 contracts (worth $3,871 million) a week later. With bitcoin just shy of $90,000 a week after Trump’s re-election to the presidency, this same bank-held position is now worth $5.3 billion – which constitutes a floating profit of $1.4 billion (+36%) in less than a month.
LONG BITCOIN FUTURES CONTRACTS – BANK HOLDINGS Open interest for bitcoin futures contracts, average contracts by year
Forbes estimates that banks increased by almost tenfold their ethereum futures contracts from $35 million to $297 million ($370 million at today’s prices), over the same period from October 15 to November 5th. The trade has no doubt been another big winner.
Although the exact reason for this surge in activity is unclear, it likely has to do with an expectation that the new crypto-friendly Trump administration will not only ease restrictions on digital asset ownership but will also support sectors like bitcoin mining. Overall the market for crypto currencies, which CoinGecko puts at $3.2 trillion has gained 37% in market value in the last four weeks. Bitcoin has risen 110% year-to-date, but even highly speculative tokens including meme coins, like Dogecoin, have surged in value. [See Meme Coin Factory story]
The largest off-shore institutional crypto derivatives marketplace, Dubai-regulated Deribit, is also experiencing record high crypto open interest and options volume levels, some $30 billion in open interest bitcoin options contracts. Unlike futures, options contracts give purchasers the right, but not the obligation, to buy or sell an underlying asset like stocks or ETFs. CEO Luuk Strijers told Forbes that “what the institutions are clearly doing is trading spot ETFs like (iShares Bitcoin Trust ETF) IBIT” and added that the bitcoin options strike prices reflect today levels of bullishness that simply weren’t there before. “The market is seeing a 31% chance of the price of bitcoin closing at $100,000 this year,” he says.
Since November 2021, the three prudential banking regulators – the Federal Reserve, the Federal Deposit Insurance Corporation, and the Department of the Treasury’s Office of the Comptroller of the Currency – have discouraged banks from holding actual bitcoin in their balance sheets or providing crypto custody services.