For the first time, Wall Street traders can trade Bitcoin futures. The U.S. Commodity Futures Trading Commission (CTFC) approved an application by derivatives giant CME Group to offer Bitcoin futures contracts.
CME Group is the largest and most diverse trader in the derivatives marketplace. They lodged an application to offer Bitcoin futures earlier this year and the expectation of its success has contributed to the rise in bitcoin price.
The U.S. commodities regulator gave the go-ahead on Friday, CME Group will begin trading bitcoin futures on December 18th, 2017 The U.S. Commodity Futures Trading Commission (CFTC) also approved a second application by CBOE Global Markets, Inc. CBOE has yet to declare a date when they will offer futures.
As part of their application, CME Group and CBOE went through a self-certification process for federal securities law compliance.
The impact for bitcoin investors
The trading of bitcoin futures on Wall Street signifies a further shift in the acceptance of digital currencies. It could lead to more stability as fewer investors buy and hold, gambling on future acceptance.
For investors and traders who have held back due to the lack of regulation the move is a green light. Now, the U.S. CFTC is the regulatory body for Bitcoin futures products.
Both CME Group and Cboe have committed to helping the CFTC monitor the bitcoin market by sharing trading information.
“Bitcoin is a commodity unlike any the commission has dealt with in the past,” said CFTC Chairman Chris Giancarlo. “We expect that the futures exchanges, through information sharing agreements, will be monitoring the trading activity on the relevant cash platforms.”
Chris Concannon, President of CBOE, expects the move to create “price equilibrium”. The equilibrium, he said, allows investors holding bitcoin already to hedge their risk. He also referred to the major event for bitcoin markets as a “wave of regulatory oversight.”
The authorization for trading futures contracts on Wall Street could pave the way for further regulated options, such as Exchange Traded Funds (ETFs).
The functionality of CME bitcoin futures
In anticipation of their authorization to trade bitcoin futures, CME Group and their product partner in the venture, Crypto Facilities Ltd, have created and tracked the CME CF Bitcoin Reference Rate (BRR). CME futures contracts will be cash-settled based on the BRR, which gives a daily reference rate of the USD price of bitcoin.
The BRR is already used as a price reference by financial institutions, traders and data providers. CME Group and Crypto Facilities also a publish a CME CF Bitcoin Real Time Index (BRTI) for real time price tracking.
CME Group provides electronic trading globally via its CME Globex platform. They expect, due to bitcoin volatility, that bitcoin futures will have higher margin levels and intraday price limits.