A Bright Start for CME Futures

James Levenson · December 18, 2017 · 5:45 am

A week to the day after CBOE launched their Bitcoin futures, CME Group followed up with a smooth introduction to the nascent crypto scene. CME is a much larger exchange, so many expect it to have a bigger impact on the markets and the overall recognition and legitimization of Bitcoin and its brethren.

The big daddy of digital currencies traded higher as expected and reached an all-time high once again on December 17th, just before CME opened its doors to traders. According to coin analysis website CoinMarketCap, Bitcoin reached $20,089 on December 17th at 12.19 UTC. The Chicago-based exchange got off to a quicker start with more efficient pricing, according to reports. CBOE futures are only tied to one BTC whereas CME’s are based on five, which makes them far more valuable contracts.

CME Group to Launch Bitcoin Futures Trading

Smooth Entry

The contracts were priced only 2% higher than the actual Bitcoin price, which made trading them more effective than CBOE’s, which were as much as 13% higher than the BTC price. According to CME data, over 200 contracts were sold for January 18th within the first hour of trading.

Head of trading at Cumberland, the cryptocurrency trading unit of DRW Holdings LLC, Bobby Cho, said that people were better prepared and knew how they were going to hedge their positions, in comparison with last week’s CBOE launch.

There are some distinct differences with the two products. The price of CBOE’s contract is derived from the cryptocurrency’s price at a single exchange, and conversely, CME price calculations are based off four exchanges. According to Coindesk, the contracts have also continued trading at a premium against the price of Bitcoin since the opening. The website’s Bitcoin Price Index had it priced at $19,400 at the time CME launched the contracts.

Volatility Protection

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%. This is to prevent wild price fluctuations in contract prices that are all too common with cryptocurrencies.

Last week, TD Ameritrade Holding Corporation said that it will offer CBOE’s contracts starting today but will hold on the CME contracts until they demonstrate sufficient liquidity. As more institutional heavyweights start looking towards digital currencies, we can expect more uptake in the markets. While this is good for Bitcoin, it could be better for its blockchain siblings.

Are Bitcoin futures good or bad for the crypto market? Let us know your thoughts in the comments below.

Images courtesy of Shutterstock and Bitcoinist archives.

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