CME Bitcoin Futures Add Credibility to Cryptocurrency Trading

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Bitcoin is earning the respect of Wallstreet following last week’s launch of Bitcoin futures contracts on CBOE, joined at the hip with this cryptocurrency’s price. The long-awaited launch by the leading exchange operator, The CME Group, added to its acceptance when it also added Bitcoin futures to its platform, giving traders a chance to bet on Bitcoin’s anticipated value, with at least $50 million worth of contracts changing hands in less than three hours of trading.CME’s Bitcoin futures will now compete with CBOE Global Markets contracts (XBT futures). CBOE surpassed $19,000 and CME’s opening price for January contract was $20,650, compared with the Bitcoin’s actual price of around $19,400 at the time. Prior to the debut of the Bitcoin futures market, the value of Bitcoin has increased over 20 times from the low price of $969 in just one year. Though it is too early to tell, experts suggest that it is possible that these futures may stabilize the price of Bitcoin.

The futures launch occurred as Bruno Le Maire, the French finance minister intimated they had plans to regulate Bitcoin. Reuters quoted Le Maire saying he would propose to the G20 presidency the need to discuss Bitcoin.  Other governments are also imposing regulations. A treasury spokesperson for the UK said, “We are working to address concerns about the use of cryptocurrencies, by negotiating to bring virtual currency exchange platforms and some wallet providers within Anti-Money Laundering and Counter-Terrorist Financing regulation.”

The fear among leading financial figures is that Bitcoin is a bubble, ready to burst. By contrast, several Wall Street firms are trading on the CME and their Bitcoin derivatives are giving the digital asset leverage towards entering the financial mainstream.

Bitcoin futures provide a new opportunity for international corporate investors who may not be able to execute transactions in Bitcoin due to existing regulations. TD Ameritrade, a leading retail brokerage firm, recognized this opportunity and will allow trading of Bitcoin futures on their platform for a subset of qualified retail clients with a minimum balance of $25,000 and 1.5X CBOE’s margin at 66%. Though the initial requirements are challenging, banks, traders and regulators are warming up to this new digital asset.

There are a few unanswered questions on futures products. As prices are splintered across trading platforms, it can be difficult to determine Bitcoin’s true value. CME’s futures contract results from an index from four different exchanges: Bitstamp, GDAX, itBit and Kraken while CBOE’s has ties with the Gemini exchange.

There are major differences between the futures products offered by CBOE and CME, the first being the contract unit. While the CBOE futures contract is using the ticket XBT, CME’s futures contracts trade in BTC. Celan Bryant of Seeking Alpha trades BTC over XBT citing his experience as a crude oil trader and Bitcoin’s surge in price after CME’s announcement in October.

Both CME’s and CBOE’s futures contract settlement will be in US dollars, and not in actual Bitcoin. CBOE’s Bitcoin futures contracts clear through the Options Clearing Corporation with a 44 percent margin rate while CME’s futures contract clears via CME ClearPort with an initial margin rate of 35 percent.

CBOE intends to list four weekly contracts, three close-term serial months and three more during the March quarterly Cycle. CME plans to list monthly contracts using the March quarterly cycle and the closest two serial months missing from the March quarterly cycle.

Trading volumes in new futures contracts takes time, with the main exchanges such as GDAX and Gemini struggling to keep pace with their success, due to platform software outages and other trading issues.

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