A Bright Start for CME Futures

Giant CME exchange launches bitcoin futures to muted response

CME's contract will compete with rival Cboe Global Markets which launched its own bitcoin futures earlier this month.

The week-old bitcoin futures contract at the Cboe was last trading at US$18,890, up 4.3 per cent. And CME's futures were priced only about 2 percent higher than bitcoin itself; in the first day, Cboe's got as much as 13 percent above, a sign trading was relatively inefficient.

Spot bitcoin eased 1.9 per cent on the Bitstamp exchange to US$18,650, after surging to a record high of US$19,666 on Sunday. Its most-active contract changed hands 221 times in the first hour versus 570 during Cboe's debut.

The CME and Cboe bitcoin futures have some distinct features.

The derivatives exchange was one of the first to move from the open outcry, "pit-style", form of trading common in the nineties, to a full-fledged electronic trading platform.

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%.

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Bitcoin was set up in 2008 by an individual or group calling itself Satoshi Nakamoto, and was the first digital currency to successfully use cryptography to keep transactions secure and hidden, making traditional financial regulation hard if not impossible.

Current eligible and newly funded TradeStation futures account holders can trade on both the CFE and CME Bitcoin futures contracts.

"The launch should increase buy-side pressure and potentially be the catalyst that pushes bitcoin above US$20,000,"said fund manager Shane Chanel of ASR Wealth Advisers in Melbourne". So in notional terms, 5125 Bitcoins traded at the CME today, compared to 3751 at the CBOE.

The general sentiment in the market remains one of caution, which is reflected in margin requirements for the contracts.

More recognition for Bitcoin and its brethren will be awarded from the news that major regulated exchanges are getting into the crypto markets. The margin for an S&P 500 futures contract, by contrast, is just 5 per cent, analysts said. The guidelines are inclusive of other margin requirements such as Options Clearing Corp.'s 44 per cent, required to clear contracts traded at Cboe, and the 47 per cent CME is demanding.

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