$BTCUSD, $CME, $CBOE
Trading in Bitcoin futures opens Sunday evening in Chicago, as the 1st major US exchange offers a product pegged to the wildly fluctuating cryptocurrency.
The currency has risen more than 1,000% this year, and about 80% in the past 2 weeks, driven largely by demand from individual (civilian) investors.
Bitcoin was launched in Y 2009 as an alternative to banks, and it divides Wall Street executives and central bankers worldwide. But such gains are a powerful money magnet.
The futures offered by Cboe Global Markets Inc., (NASDAQ:CBOE) and similar contracts that start trading in a week at at another Chicago-based exchange, CME Group Inc.(NASDAQ:CME), may open the door to greater inflows of institutional money, while also making it easier to bet on Bitcoin’s fall.
Some say, that it s likely trading will start slowly.
“If people have expectations that it’s going to have huge liquidity on day 1, they’re just wrong.
“It’s going to take a while to build liquidity. People need to go through at least one cycle to figure out how it settles,” said on analyst Thursday.
Derivatives trading is the culmination of a very strong year for Bitcoin, which captured imaginations and investment around the world, propelled by its stratospheric gains, and its anti-establishment mission as a currency without the backing of a government or a central bank, and a payment system without a reliance on banks.
The derivatives contracts should thrust Bitcoin more squarely into the realm of regulators, banks and institutional investors.
In addition to the contracts at Cboe and CME, which will start trading on 18 December, Cantor Fitzgerald LP won approval from regulators to trade binary options, and LedgerX, a startup exchange, already trades Bitcoin options.
The professional traders will mostly be looking to do arbitrage, between the futures and Bitcoin itself.
Shayne and I do not expect massive money flows right away but expect gradual buying from people who want passive exposure without buying Bitcoin directly.
Professionals do not rush in like civilian investors.
On 1 December CME and Cboe exchanges got permission to offer the contracts after pledging to the US Commodity Futures Trading Commission (CFTC) that the products do not run afoul of the law, in a process called self-certification.
Derivatives should have the effect of bringing a deeper liquidity to the market which should reduce volatility. As the whole cryptocurrency economy gets bigger the volatility abate
Interactive Brokers will offer its customers access to the futures, though with greater restrictions. They will not be able to go short meaning betting that prices will fall, and Interactive’s margin requirement, or how much investors have to set aside as collateral, will be at least 50%. That is higher than either Cboe’s or CME’s margin requirements.
Cboe’s futures are cash-settled and based on the Gemini auction price for Bitcoin in USDs. The exchange plans to impose trading limits to curb volatility, halting trading for 2 mins if prices rise or fall 10%, and a 5 min halt kicks in at 20%.
Margins for Cboe bitcoin futures, which will be cleared by Options Clearing Corp., will be at 40% or higher.
Some traders also will prefer CME contracts over Cboe’s because they are based off 4 exchanges, instead of 1, reducing risk of disruptions because of outages, attacks or price manipulations.
Cboe does have an advantage over CME Group because it’s a major player in stock and equity options trading, giving it access to broker-dealers and investors who may not trade on CME.
Have a terrific week.