Bitcoin Pares Rapid Gains After CME Futures Launch

by Ike Obudulu Posted on December 18th, 2017

Chicago, Illinois, USA: Chicago Mercantile Exchange, CME Group Inc, the world’s largest derivatives exchange operator, launched its own bitcoin futures contract trading on Sunday, just a week behind the Chicago Options Exchange, (CBOE) – the world’s largest options exchange. CME’s Bitcoin Futures contract now trades on CME Globex and CME ClearPort, Sunday to Friday, from 6 p.m. – 5 p.m. Eastern time with a one-hour break each day beginning at 5 p.m.

The CME Bitcoin Futures Contract – which is more institutional – uses the ticker BTC and each contract equals five bitcoins with a 35 percent initial margin rate.

CME’s contract will be priced off of the CME Bitcoin Reference Rate, an index that references pricing data from cryptocurrency exchanges, currently made up of Bitstamp, GDAX, itBit and Kraken.

CME said it will list monthly contracts for the nearest two months in the March quarterly cycle (March, June, Sept., Dec.) plus the nearest two serial months not in the March quarterly cycle.

CME will apply price limits, also known as circuit breakers, to its bitcoin futures of 7 percent, 13 percent, and 20 percent to the futures fixing price. Trading will not be allowed outside of the 20 percent price limit

CME’s bitcoin contract may not be first, but they are a much larger futures clearinghouse than CBOE which launched a week earlier.

Similar to the CBOE contract, the CME futures are cash settled, and after reviewing the initial margin requirement ahead of launch the CME raised it this week from 35% to 47% for speculative accounts, modestly higher than the CBOE’s 44% initial margin requirement.

The settlement price of the CME futures will be based on a weighted average of prices from several exchanges (including Bitstamp, GDAX, itBit and Kraken), rather than a single exchange. The settlement dates of the CME futures will also extend further ahead to March, June, September and December.

These factors, along with the fact that the CME is a larger exchange, could give it an advantage in terms of attracting trading volumes.

The virtual currency was trading below $1,000 at the beginning of the year, and rose to more than $19,000 on some exchanges in the days leading up to its debut on the Cboe and CME. Bitcoin was trading at $18,981 Monday morning on Coindesk.

The Securities and Exchange Commission put out a statement last week warning investors to be careful with any investment in bitcoin or other digital currencies. Further, the Commodities Futures Trading Commission has proposed regulating bitcoin like a commodity, not unlike gold, silver, platinum or oil.

Futures are a type of contract where a buyer and seller agree on a price on a particular item to be delivered on a certain date in the future, hence the name. Futures are available for nearly every type of security out there, but are most familiarly used in commodities, like oil wheat, soy and gold.

EARLIER : Bitcoin Futures Soar On CBOE Debut – The Chicago Options Exchange (CBOE) – the world’s largest options exchange – launched bitcoin futures trading Sunday, December 10, with the January contract at $15,640 and it soon surged above $17,000, trading at more than $1,000 premium. The trading – under the ticker symbol XBT – started at 5:00 p.m. (23:00 GMT) in Chicago.

Trading under the ticker XBT, XBT futures are cash-settled contracts based on the Gemini’s auction price, according to the CBOE.

XBT contracts do not involve trading actual bitcoin, but allow investors to bet on the future price of the cryptocurrency on the Gemini Exchange, one of the largest cryptocurrency exchanges.

The cryptocurrency futures contracts are priced against the dollar.

Meanwhile, Chinese regulators are expected to allow its largest Bitcoin exchange to resume operations in the second week of December.

Bitcoin is experiencing an unprecedented bullish rally this year, despite some analysts’ warnings and fears of the cryptocurrency being a “dangerous bubble.”

The rapidly surging virtual currency made its debut in 2008, traveling the path from no value to a fraction of a penny by March 2010. Bitcoin’s rise in value in 2017 is unprecedented with the token worth just $1,000 on January 1 to more than $17,000 today. Just 24 hours earlier, Bitcoin had been at +$13,000.

Bitcoin’s unstoppable rise comes as UK money transfer application Revolut, announced plans to let its customers buy and sell cryptocurrencies, including bitcoin, ethereum, and litecoin. The firm is currently applying for a European banking license that will make it the first bank in Europe to allow cryptocurrency purchases.

Besides CBOE, top exchanges in the US like the Chicago Mercantile Exchange (CME) and NASDAQ have announced plans to introduce Bitcoin futures contracts. The measure, which is expected to bring bitcoin to the world of ‘grown-up’ finance, has triggered the recent bull run.

CBOE’s rival Chicago Mercantile Exchange & Chicago Board of Trade (CME) Group will launch Bitcoin futures trading on December 18.

The new derivatives contracts should thrust bitcoin more squarely into the realm of regulators, banks and institutional investors. Both Cboe and CME on Dec. 1 got permission to offer the contracts after pledging to the U.S. Commodity Futures Trading Commission that the products don’t run afoul of the law, in a process called self-certification.

US stock exchange, Nasdaq, plans to introduce bitcoin cryptocurrency futures contract in the first half of 2018. Nasdaq’s contract on bitcoin would be traded on Nasdaq Futures (NFX), a marketplace, established in 2015 and until now dealing with the energy sector.

Additionally, broker Cantor Fitzgerald, a global financial services firm, is also reportedly planning to launch its bitcoin derivatives, which would provide traders with a hedging alternative that swaps bitcoin prices up to three months out with protection of their losses in case the cryptocurrency rockets above $15,000 or below $5,000.

Wall Street banking giant JPMorgan is reportedly mulling the idea of helping clients tap into the potential bitcoin futures market being prepared by the Chicago Mercantile Exchange (CME).

Bitcoin’s unprecedented rally has boosted the cryptocurrency’s market cap to over $200 billion. That is more than the annual output of entire economies such as Greece and New Zealand.

Its market capitalization is also bigger than the economies of Greece, Iraq, Qatar, and Kuwait, according to International Monetary Fund World Economic Outlook, released in April. If bitcoin were a country, it would be the 50th wealthiest nation in the world, ahead of 144 countries.

Bitcoin’s value has also dwarfed some of the world’s banking giants. The market cap of American multinational Goldman Sachs Group is just over $95 billion, while Zurich-based UBS is worth $65.5 billion. The value of the two banks combined still falls short of bitcoin.

The world’s number one digital currency has managed to exceed the market value of US aircraft manufacturer Boeing at $165.5 billion. The century-old firm with 140,000 employees in more than 65 countries, has fallen far behind bitcoin that didn’t even exist 10 years ago.

Meanwhile, Venezuela is set to launch ‘Petro’ cryptocurrency to fight Trump’s ‘financial blockade’.

Venezuelan President Nicolas Maduro announced last Sunday that the country will launch its own cryptocurrency, called the “Petro,” which will be backed by the country’s vast natural resource reserves.

“Venezuela is announcing the creation of its own cryptocurrency. It will be called The Petro. It will allow us to innovate towards new forms of international finance for the economic and social development of the country”, Maduro said Sunday in a statement on state broadcaster VTV.

There is a lot of Bitcoin Gold chatter recently and of the Bitcoin—dollar pair eventually becoming the universal currency and payment system, possibly rendering the institution of central banking obsolete. Bitcoin is backed by the market’s trust in miners and blockchain technology, which is far from being solid.

Both Bitcoin and gold are currently traded against the dollar, and Bitcoin—gold pricing is not quite as ubiquitous yet.
Also, Bitcoin does not enjoy central bank asset backing. Gold, however, could provide substantial backing to Bitcoin in the conventional markets, by eliminating risks of high volatility and making it easy to cash out of the cryptocurrency.

Bitcoin, is one of the most popular cryptocurrencies, which allows users to make secure payments for goods and services online. It was introduced in 2009 – as open-source software in 2009 by an unknown person or group under the name of Satoshi Nakamoto – to serve as an independent alternative to government-backed currencies.

The first international decentralized digital currency, Bitcoin works without a single administrator or central repository, while transactions between people are made directly without an intermediary.

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