In mid-September, forex company CME Group announced the introduction of options on its Bitcoin futures contracts in the first quarter of 2020, pending regulatory review. Tim McCourt, managing director of CME Group, said there is “increasing customer demand” for the company’s bitcoin derivatives, and now the company has released specifications for the option products.
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Bitcoin options from the CME Group Group
The global market company CME Group offers its customers the opportunity to hedge or trade benchmark options on futures in almost all asset classes. The company has an average daily volume of $ 4.3 million this year and aims to offer options on Bitcoin futures so investors have a variety of different methods of trading the asset. When CME announced the introduction of Bitcoin options, McCourt stated that the new product “will give customers additional flexibility in trading and hedging their Bitcoin price risk.” This week, after Bakkt’s recent volume increases, CME released the preliminary contract specifications for the options. The cheap prices are based on the CME CF Bitcoin Reference Rate (BRR), which is determined by a variety of major crypto exchanges.
Bitcoin futures volume and open interest from CME on 10/28/19.
The contract unit will consist of a Bitcoin futures contract that is approximately five BTC in USD. There is minimal price fluctuation and the listing cycle will reflect the company’s Bitcoin futures exposure. CME’s Bitcoin options on futures are traded Sunday through Friday on Globex and Clearport. The company determines that the BTC option product is subject to revision and review by financial regulators. “We are working on bringing options for these futures to market,” McCourt said in a recent interview with crypto analyst Benjamin Pirus. “The option on the Bitcoin future gives the holder of that option, either a put or a call option, the right – but not necessarily the obligation – to either buy or sell the underlying futures contracts at maturity.” McCourt further emphasized:
It’s very similar to how other options work in the marketplace. The difference is that the underlying or the delivery object of the options contract is a Bitcoin future from the CME Group.
CME Group’s Bitcoin Futures Volume at 11 a.m. EST on 11/2/19
Is Bitcoin “tamed” like a traditional investment?
Bakkt’s physically delivered Bitcoin futures product has caused quite a stir recently after the stock market broke some new records and CEO Kelly Loeffler announced that Bakkt will also offer options on Bitcoin futures. Despite the all-time highs in the Bakkt warehouse, the CME Group’s BTC derivatives have reached much more volume. CME’s Globex recorded 7,242 Bitcoin futures contracts and 3,284 in open interest on October 28. In the following days on Globex up to November 1, the contracts ranged between 2,200 and 3,687. November’s CME Bitcoin futures contracts are now at 2,641 contracts and December positions are also starting to pile up.
The crypto derivatives markets and products have matured significantly since their inception, and it has been less than two years since CME launched its BTC-based futures. At the time, the company’s retired chairman Leo Melamed told Reuters in an interview that adding BTC futures was a “very important step in the history of Bitcoin.” Melamed added that he believed institutional investors would be very interested in the new asset class. “We will regulate, make Bitcoin neither wilder nor wilder. We’ll tame it into a regular trading instrument with rules. ”Since then, a number of different companies have offered Bitcoin-based derivative products, and futures are also coming on other cryptocurrencies like ETH and BCH. According to reports, BCH futures are expected to debut on a CFTC-regulated exchange in the first quarter of 2020.
What do you think of CME’s bitcoin options specs? How do you rate the overall growth of crypto-based derivatives? Let us know what you think on this matter in the comments below.
Photo credit: Shutterstock, CME Group, Bitcoin Futures Volume Globex, and Pixabay.
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Bakkt, BCH, Bitcoin, Bitcoin Cash, Bitcoin Options, Bitcoin Reference Rate, BTC, CME Group, CME Group Open Interest, Stocks, ETH, Ethereum, Finance, Futures, Kelly Loeffler, Leo Melamed, Tim McCourt