Bitcoin futures launch on CME as cryptocurrency marches towards the mainstream

20 December, 2017, 01:24 | Author: Lora Ball
  • Bitcoin Hits a New Record High, But Stops Short of $20000

On Sunday, a week after Cboe Global Markets Inc. listed the first bitcoin futures contracts, CME Group Inc. debuted its own derivatives for the cryptocurrency.

They were triggered in the initial hours of their trading as the January contract rose as much as 26 percent.

Cryptocurrency heavyweight Bitcoin (BTC) pushed forward in overnight trade, aided by a strong performance in the futures market. Interactive Brokers Group Inc., which has said it handled 53 per cent of the first day's trading in Cboe's bitcoin futures, will require a margin of 50 per cent for long investments, and about 240 per cent for short selling, based on current rates, according to Interactive Brokers spokeswoman Kalen Holliday. On its debut on Dec 10, the Cboe traded almost 4,000 contracts during the full session.

The CME and Cboe bitcoin futures have some distinct features.

Large exchanges such as these have volatility protection in place, which means they will suspend trading if the contracts rise or fall 7% or 13%, and prices won't be allowed to move more than 20%. JB Mackenzie, . the managing director of futures trading at TD Ameritrade said: "We look at the volume, the open interest and the spreads, and we want to make sure that all those conditions are maturing properly".

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The launch of bitcoin futures is viewed as a major step in the digital currency's path toward legitimacy, which should encourage the entry of big institutional investors.

Disclosure: CME Group is an investor in Digital Currency Group, CoinDesk's parent company.

"The launch should increase buy side pressure and potentially be the catalyst that pushes bitcoin above $20,000", said Shane Chanel, a fund manager at ASR Wealth Advisers in Melbourne.

Some investors believe the CME bitcoin futures could attract more institutional demand because the final settlement price is culled from multiple exchanges. So in notional terms, 5125 Bitcoins traded at the CME today, compared to 3751 at the CBOE. The margin for an S&P 500 futures contract, by contrast, is just 5 per cent, analysts said. Instead, we will closely watch the Bitcoin Futures market as it develops and continue to evaluate the offering for our clients.

The margin requirement at CME is 35 per cent, while at Cboe, it is 40 per cent, reflecting bitcoin's volatility.

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