Bitcoin futures are getting closer

December 1, 2017 05:04 PM

Both Cboe Global Markets and CME Group announced that they have self-certified the initial listing of each of their bitcoin futures contracts on Friday Dec. 1. Both exchanges previously had announced plans to launch bitcoin futures as early as the fourth quarter of 2017, but only CME announced a launch date, Dec. 18, in today’s announcements. Cboe Chairman and CEO Ed Tilly says they are prepared to announce a launch date shortly.

“We will give a date relatively soon. This took a monster cooperative effort with our regulator,” Tilly says. “This was the first big hurdle, operationally we have been ready to go.”

The Cboe contract (XBT) will settle based on the auction price of bitcoin in U.S. dollars on the Gemini Exchange. CME Group's Bitcoin futures will be cash-settled, based on the CME CF Bitcoin Reference Rate (BRR) which serves as a once-a-day reference rate of the U.S. dollar price of bitcoin. 

The most significant difference between the two contracts is that Cboe’s contract size will be based on a single bitcoin, currently trading just above $10,000, while the CME’s contract size will be based on five bitcoins, a current notional value of more than $50,000.

Cboe Contract specs

CME Contract Specs

Commodity Futures Trading Commission Chairman commented on the contracts in a release from the regulator. “Bitcoin, a virtual currency, is a commodity unlike any the Commission has dealt with in the past,” said CFTC Chairman J. Christopher Giancarlo. “As a result, we have had extensive discussions with the exchanges regarding the proposed contracts, and CME, CFE and Cantor have agreed to significant enhancements to protect customers and maintain orderly markets.”

CME Group Chairman and Chief Executive Officer Terry Duffy said in its release: "We are pleased to bring Bitcoin futures to market after working closely with the CFTC and market participants to design a regulated offering that will provide investors with transparency, price discovery, and risk transfer capabilities. He added, “Though we have worked through a lengthy, comprehensive process with the CFTC to get to this point, we recognize bitcoin is a new, uncharted market that will continue to evolve, requiring continued collaboration with the Commission and our clients going forward.”

CFTC Chair Giancarlo set a cautionary tone in his statement. “Market participants should take note that the relatively nascent underlying cash markets and exchanges for bitcoin remain largely unregulated markets over which the CFTC has limited statutory authority,” he notes. “There are concerns about the price volatility and trading practices of participants in these markets. We expect that the futures exchanges, through information sharing agreements, will be monitoring the trading activity on the relevant cash platforms for potential impacts on the futures contracts’ price discovery process, including potential market manipulation and market dislocations due to flash rallies and crashes and trading outages. Nevertheless, investors should be aware of the potentially high level of volatility and risk in trading these contracts.”

Tilly says that the Cboe is ready whenever they get final regulatory approval. “You can’t predict when you get a green light, now we have to go back and make sure the liquidity providers are amped up and ready to go,” he says. “We wouldn’t have gotten to this point without [the regulator’s] deep understanding of how this contract is going to work.”

The CFTC release also noted that the Cantor Exchange had self-certified contract on bitcoin binary options. 

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.