The Chicago Mercantile Exchange (CME) Group plans to add options to its bitcoin futures contracts at the beginning of 2020. In an official announcement made on September 20, 2019, the company, which launched its first futures product in 2017, said that the bitcoin options would provide clients with “additional tools for precision hedging and trading.”
The options are currently being reviewed by regulators, and CME confirmed that once the addition clears, they will be available for purchase.
Bitcoin futures contracts allow investors to buy bitcoin at a predetermined price at a specific time in the future, letting them speculate on what they think the price will be. To date, there have been 20 successful futures expiration settlements and over 3,300 individual accounts have traded the product, according to CME’s announcement. Options contracts give investors the choice of whether or not to sell their futures contract on or before an expiration date, a product typically preferred by hedgers.
“These new products are designed to help institutions and professional traders to manage spot market Bitcoin exposure, as well as hedge Bitcoin futures positions in a regulated exchange environment,” CME Group’s Global Head of Equity Index and Alternative Investment Products Tim McCourt said, per the announcement.
Bitcoin Futures Market Heating Up
In June 2019, a liquidity report published by CME Group revealed that it had set new records in both open interest and average daily trading volume the month prior. At the time, bitcoin futures hit 13,600 contracts in average daily volumes, worth about $515 million in notional traded value. This marked an increase of about 250 percent over the same period in 2018. Open interests (or contracts left unsettled) climbed up to 4,602; about 80 percent higher than in May 2018.
Things could get interesting for CME Group, as Intercontinental Exchange’s Bakkt gears up to launch its physically settled bitcoin futures on September 23, 2019. Bakkt’s qualified custodian, Bakkt Warehouse, also opened its doors for bitcoin deposits and withdrawals in September 2019. Though Bakkt’s futures offering was delayed beyond expectation over the firm’s difficulty in satisfying the requirements of U.S. regulators, particularly the Commodity Futures Trading Commission (CFTC), which tested the platform back in July 2019.
But now, the stars seem aligned for the launch of Bakkt’s physical bitcoin futures. The chief difference between Bakkt’s options and that of CME’s lies with the settlement. The CME Group is providing cash settlements, while Bakkt’s contracts would be settled in bitcoin.
Jimmy has been following the development of blockchain for several years, and he is optimistic about its potential to democratize the financial system.