Bitcoin, the Angst, the Allure
$BTCUSD, $CME, $CBOE, $GBTC
CME,(NASDAQ:CME) the world’s largest exchange owner reversed course Tuesday and said it plans to introduce Bitcoin futures by the end of Y 2017, just a month after dismissing an earlier plan.
Bitcoin, the largest cryptocurrency, which has risen 6X YTD, spiked to a fresh record high after the announcement and is currently trading at 6,595.4614 Vs USD.
CME’s Chicago neighbor may have had a lot to do with the decision.
CBOE Global Markets Inc. (NASDAQ:CBOE) said earlier this year that it was going to begin a Bitcoin futures contract by Q-1 Y 2018, and awaits approval from the Commodity Futures Trading Commission (CFTC).
The CME contract will settle in cash and use a daily price from the CME CF Bitcoin Reference Rate, which is supported by digital exchanges Bitstamp, GDAX, itBit and Kraken.
Gemini, one of the other large global exchanges, struck a deal with CBOE.
A functioning derivatives market could help professional traders and investors access the incredible volatility inherent in bitcoin without having to trade on unfamiliar venues that may risk anti-money laundering and know-your-customer rules. It will also allow traders to hedge their cash positions in the digital currency, which to date has been difficult to do.
“As the world’s largest regulated FX marketplace, CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities,” Terrence Duffy, CME’s CEO, said in a statement Tuesday.
The creation of Bitcoin futures is a Key step in opening the asset to institutional investors, who currently have few opportunities.
Bitcoin Investment Trust, (NASDAQ:GBTC) 1 of the only avenues for investors seeking Bitcoin-backed securities, is trading at a premium of more than 30% above net asset value.
The trust, known as GBTC, is a “physical” fund, meaning it holds Bitcoin itself.
Just now the amount of institutional money in Bitcoin now is very little because there are very few vehicles to play in.
If there are Bitcoin futures, there can be futures-based ETFs (exchange-traded funds).
Many investors who want to cannot maintain ownership of Bitcoin now, what is known as custody, either for regulatory reasons or because it’s scary and hard, the Angst.
But in a regulated market like futures that does not become an issue. The ability to easily short allows for market neutral strategies and makes high-frequency trading much easier. That draws a lot of attention from hedge funds and the traditional finance world, the Allure.
CME and CBOE face challenges to win over investors to their Bitcoin futures. If the underlying pricing is unsound that could steer people away, more Angst.
CME is a giant company trading with products including futures on the S&P 500, Crude Oil and Gold, and customer connections all around the world.