Most U.S. banks are prohibited from directly holding bitcoin, but recent data from the Commodity Futures Exchange Commission (CFTC) shows that they have made significant gains in the cryptocurrency market. Wall Street banks began investing in bitcoin futures before the U.S. presidential election, which proved to be a lucrative move as the cryptocurrency’s value soared from $62,000 to nearly $90,000. The CFTC’s Commitment of Traders report revealed that big banks took long positions totaling $3 billion in bitcoin futures at the Chicago Mercantile Exchange (CME), marking the most bullish position taken by banks since the CME introduced bitcoin futures in 2017.
Despite regulations prohibiting broker-dealers from owning bitcoin outright, they are allowed to hold derivative products such as futures and exchange-traded funds. Based on the average purchase price of each contract at $65,800, Forbes estimates that banks may be sitting on a paper profit of up to $1.4 billion considering the recent high of nearly $90,000. While the specific bank-owned entities are not disclosed in the CFTC report, major bank-owned broker dealers such as JP Morgan Securities, Goldman Sachs, and SG Americas Securities are known to operate in financial futures and crypto ETF markets.
A Forbes analysis of the latest futures trader report indicated that banks’ capital held as open interest in bitcoin futures contracts increased from 1,200 contracts worth $373 million on October 8 to 11,766 contracts worth $3,871 million a week later. With bitcoin nearing $90,000 after the U.S. presidential election, this bank-held position is now valued at $5.3 billion, yielding a floating profit of $1.4 billion in less than a month. Additionally, banks increased their ethereum futures contracts from $35 million to $297 million over the same period, showcasing another successful trade.
The surge in bank activity in the cryptocurrency market is believed to be driven by expectations that a new crypto-friendly administration under Trump will ease restrictions on digital asset ownership and support sectors like bitcoin mining. The overall market for cryptocurrencies, valued at $3.2 trillion according to CoinGecko, has seen a 37% increase in market value in the last four weeks. While bitcoin has risen by 110% year-to-date, even highly speculative tokens like Dogecoin have experienced significant value surges during this period.
The largest offshore institutional crypto derivatives marketplace, Deribit, based in Dubai, has also seen record-high levels of open interest in crypto options contracts, totaling around $30 billion. Options contracts give purchasers the right to buy or sell an underlying asset like stocks or ETFs without the obligation to do so. CEO of Deribit, Luuk Strijers, noted that institutions are increasingly trading spot ETFs like iShares Bitcoin Trust ETF (IBIT), with bitcoin options strike prices reflecting bullish sentiment. The market is currently projecting a 31% chance of bitcoin reaching $100,000 by the end of the year.
Recent guidelines from prudential banking regulators, including 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 directly holding bitcoin on their balance sheets or offering crypto custody services. Despite these restrictions, banks continue to capitalize on the cryptocurrency market through futures contracts and other derivative products, leading to significant gains in recent months.
