CME Looks To Launch Options Trading On Bitcoin Futures In 2020

| September 27, 2019 | 0 Comments

bitcoin futuresIt was in November 2017 when the CME Group Inc. (CME) launched futures contracts on Bitcoin for trading. Now, two years later, the exchange announced list options on Bitcoin to begin trading in January 2020. For some, this was a long time coming, for others, it’s a sign that Bitcoin’s still a bubble waiting to burst.

At the time the futures launched, it was supposed to create a new level of legitimacy for the cryptocurrency, but instead seemed to be a classic case of “ringing the bell” at the top.

Indeed, on the day following CME’s announcement, the price of Bitcoin surged by some $400 to cross above $10,000 for the first time and went parabolic to top out above $17,500 by mid-December.

By the time BTC futures began to trade in January of 2018, the bubble had burst and BTC was back below $10,000 before ultimately sinking below $5,000 earlier this year.

Bitcoin

(Source: Coindesk)

At the time of the launch, I wrote “I think it’s premature to list actual futures contracts” with my main complaint that futures contracts have historically been created or brought to market because they offer a true economic purpose. Namely, as way producers and users of a commodity or asset to hedge.

At the time, there was very little use of BTC as a currency for transactions so there was no need for hedging, hence the futures would merely be a vehicle for speculation. Remember, the contracts are cash-settled, meaning they are not a way to accumulate underlying Bitcoins.

Trading in the futures never really gained traction; there still just 3,300 accounts trading some 4,000 contracts of BTC futures a day; barely a blip of the over 5 million contracts that trade on CME Group Inc. (CME) every day.

While Bitcoin has not really seen an expanded use as a currency, it has proven very resilient as a store of wealth with its price moving back up to the $14,000 level as people looked for an alternative to negative interest rates and a general distrust of fiat currencies.

The CME’s announcement could be seen as a response to the ICE Exchange (ICE), which owns the NYSE, which launched its own BTC futures last week.  With options, CME Group Inc. – (CME) can be looking for a way to maintain its role as the leader in futures and trading and is essentially a call option on the potential growth of Bitcoin and possibly other digital currencies.

ICE’s futures product is part of a venture called Bakkt which includes investments from companies such as Starbucks (SBUX) and Microsoft (MSFT) with a focus on developing ways to let customers convert digital assets making it easier for both merchants and customers use Bitcoin as a tool for payment processing.

Most agree the underlying blockchain technology of Bitcoin has many valuable use cases.  And each new product, from CME, ICE, and elsewhere, is another building block in what is expected to eventually be an institutional market for cryptocurrencies as their own asset class.

Note: This article originally appeared at The Option Sensei.

 

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Category: Breaking News

About the Author ()

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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