Those of us in the financial markets have been learning new phrases such as “hash rate”, “block height”, and “hard fork” since the launch of Cboe Bitcoin Futures last month. Crypto traders that have embraced bitcoin futures are having to get up to speed on the listed markets. Something that is new to the crypto space is the Commitment of Traders Report (COT Report) that is released by the CFTC each Friday.
The following is directly from www.cftc.gov with respect to the COT Report –
The Commitments of Traders (COT) reports provide a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC.
It should be noted that there need to be 20 or more traders holding positions for a futures contract to be included in the COT Report. As of January 2nd, the CME contract has not attracted enough unique traders to appear in the report.
Below is the most recent COT Report which was issued last Friday January 5th but is based on data from Tuesday January 2nd. This is common where the weekly Friday report is based on data from the Tuesday of that week. I’ve highlighted the Non-Commercial and Commercial Lines (red box #1) as I believe they deserve a little explanation.
Non-Commercial traders are those who are not reported as using the futures market for hedging purposes. A Commercial trader is designated as participating in bona fide hedging transactions. Non-Commercial does not necessarily mean all individual traders, for instance hedge funds that speculate on volatility remaining low through shorting VIX futures would be considered Non-Commercial.
As of Tuesday of last week there were 3,044 short bitcoin futures positions and 1,356 long bitcoin futures positions held by what is defined as Non-Commercial traders. The higher number of short positions is not surprising since Cboe Bitcoin Futures offer the first method of being able to easily gain short exposure to bitcoin.
There are no Commercial positions reported, but this does not necessarily mean institutional traders are not involved in Cboe Bitcoin Futures. Finally, the Spreading classification represents the number of positions that hold equal long and short futures with different expirations. For example, a trader is short 1 Jan XBT and long 1 Mar XBT.
The Nonreportable Positions (blue box #2) represents the number of long and short reportable positions from the total open interest. These positions are classified as Nonreporatable Positions because the commercial / non-commercial classification of each trader is unknown.
Finally, we can see how many unique traders are involved in Cboe Bitcoin Futures by looking at the # Traders (purple box #3). As of last Tuesday there were 39 unique reportable traders holding positions in Cboe Bitcoin Futures. Some traders may appear in different categories to 39 is a little less than the sum of the traders in each category.
Futures traders have used the COT Report for years as a tool to see how speculators and hedgers are exposed to certain markets. They may use this information to identify a crowded speculative trade, if the non-commercial short interest is very large compared to the long interest. Also, in cases where there is data about commercial entities if businesses with direct exposure to the underlying market are hedged against a price drop or a price rise can be extracted from the report.
So far bitcoin activity is still expanding and the COT report data is coming in each week. As we see more numbers from the CFTC about Cboe Bitcoin Futures positions we will definitely be reporting back in this space.
You can see the COT Report at www.cftc.gov and of course learn more about Cboe Bitcoin Futures at www.cboe.com/bitcoin