It has been over two weeks since Cboe Global Markets Inc. and CME Group Inc. received a green light from the U.S. Commodity Futures Trading Commission to trade bitcoin-based futures. Last week the Chicago Board Options Exchange (Cboe) was the first to launch such futures and was met with considerable attention. Now, it was the turn of the world’s largest futures exchange the Chicago Mercantile Exchange (CME Group) to launch bitcoin derivatives products.
Lots of bitcoin supporters have been excited about the CME addition, and some speculators suppose the spot market price reflects the hopefulness. Just before the Cboe launch, the spot price of bitcoin was low. But it started climbing right on the hour the derivatives were launched.
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On Sunday, December 17 bitcoin traded higher as expected and hit a new record of $20,089 just before CME entered the game, according to the CoinMarketCap. “The world’s largest derivatives exchange operator, began trading bitcoin futures Sunday, with the contract opening at what is currently its session high and dropping over 6% within the first half hour,” reported the Reuters.
Notably, CME futures opened at $20,650. So far they traded as low as $19,290, and the highest point was $20,650 in a session that extended into Monday, December 18.
“We saw a nice open on light volume, but pretty uneventful so far. I do think we could certainly pick up in volume as Asia begins to open. This is a brand-new asset class, and I think perhaps a lot of investors want to sit back and see how this plays out before dipping their toes in this market,” said Spencer Bogart, who is a partner at Blockchain Capital LLC.
CME vs. Cboe
Interestingly, recently volume on CME was at 287 contracts. On the contrary, the Cboe traded about 4,000 futures during the full session.
But what is unique about CME’s futures is that they are based on five bitcoins, whereas Cboe’s contracts are only bounded to one BTC. Therefore, CME’s futures are way more valuable than Cboe’s ones, as Bob Fitzsimmons told Bloomberg.
According to the Reuters, “the Cboe futures contract is based on a closing auction price of bitcoin from the Gemini exchange, which is owned and operated by virtual currency entrepreneurs Cameron and Tyler Winklevoss.”
Another difference is that CME’s contracts will require investors to meet a margin requirement of 35 percent, while at Cboe it is 40 percent, which reflects bitcoin’s volatility, though traditionally the minimum-level margin is only 10 percent of the futures contract.
What to expect next
For the CME derivatives, investors will have to utilize a brokerage service the way in should be done for Cboe’s contracts. However, there are not that many services which offer futures for each of these companies. Hence, this may cause the liquidity problems.
Interactive Brokers who firstly provided Cboe’s futures will also allow CME’s contracts. One will be able to purchase CME’s products in contracts for the nearest two months in the March quarterly cycle and the closest two consecutive months.
At the same time, CME launch is expected to offer more liquidity when also making longs and shorts smoother for institutional traders.
According to Bloomberg , a lot of people see the launch at CME as a milestone mainstream acceptance of bitcoin because, for a lot of traders who might not be able to invest into an unregulated exchange or who might just find troublesome invest in bitcoin, this might be a more familiar and regulated way for them.
Ultimately, some investors suppose the CME bitcoin futures could engage more institutional demand. And the reason for this is that the final settlement price opts from numerous exchanges.