CBOE and CME are both listing Bitcoin futures products in the upcoming couple of weeks (see below for a few differences or go to our blog post for a more robust contract comparison and how to view bitcoin in QuikStrike). Established exchanges are better positioned to handle large volumes of trading like those that have presumable hobbled the major cryptocurrency exchanges today.
Financial market exchanges have the unenviable job of saving traders from themselves (by not allowing the financial ecosystem to take on undue risk that could cause a systemic market meltdown – ahem – Lehman/Bear/et al.) while trying to get enough market participants to trade their product(s) so that they have liquidity. Not too hot, and not too cold, but hot enough to earn profits from fees. Historically, only one exchange at a time has been able to effectively list any given product so we expect a dominant contract/exchange to emerge in the next year or so.
After the battle for bitcoin futures plays out, though, one can’t help but wonder what comes next? Here are some possibilities that we consider likely –
– Options on futures (stay tuned for our bitcoin options analysis)
– Options on calendar spreads
– E-mini contracts for CME (the original listing will be for 5 bitcoins)
– Weekly options
– Additional contracts in the term structure for the dominant exchange
– ETFs on the futures for retail customers
CBOE vs. CME
Perhaps as a result of the distributed nature of cryptocurrencies, until now, bitcoins have traded on a multitude of cryptocurrency platforms of varying repute and quality forcing the more traditional exchanges to get creative with determining the “true” exchange rate of bitcoin.
The most important difference between the exchanges contracts will be how the price of bitcoin is determined. CBOE’s futures will be based on Gemini’s auction price for BTC/USD. Auctions take place daily at 3pm CT and endeavor to “foster moments of elevated liquidity.” Gemini was founded by the Winklevoss Twins – famous for suing Mark Zuckerberg over the creation of Facebook – who have been some of the most public, early advocates of bitcoin.
CME is taking a more democratic route using price and volume data from “a geographically diverse set of bitcoin trading venues” to “reflect global bitcoin trading activity in a representative and unbiased manner.” For bitcoin historians, their methodology is similar to the first CFTC approved index created by TeraExchange in 2014. The current constituent exchanges for the CME are the following:
What are your thoughts on cryptocurrencies? Just another bubble or the wave of the future? Drop us a line.