CME announces launch of Bitcoin futures pushing up the Bitcoin Prices further up the pricing ladder

CME, the world’s largest futures and options exchange made the announcement of launching Bitcoin Futures during the fourth quarter of 2017 after it has surpasses the regulatory review, thus marking a significant step taken towards the path of bring legitimacy in digital currency spectrum. The announcement was made yesterday on 31 October 2017, when Bitcoin White Paper Turned Nine. Keeping in sync with such good news, the price of Bitcoins sky-rocketed to $6400 on Tuesday. Terry Duffy, the CEO and Group Chairman of CME stated that, “given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract.”

During the “Closing Bell” show telecasted on CNBC, Duffy added that he feels “confident” about CME’s self-certification and full application process at U.S. Commodity Futures Trading Commission getting a green signal. Duffy pointed out that, “we’ve been working with the regulator. They understand our application. And they understand our model very, very well.” He was also quick to add that, “As the world’s largest regulated FX marketplace, CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities.”

All About Bitcoin Reference Rate

CME is a new entrant into the field of offering derivatives for Bitcoin and had launched CME CF Bitcoin Reference Rate (BRR) in collaboration with Crypto Facilities, a London-based digital trading platform back in November 2016. The Bitcoin futures contract are going to be cash settled using the Bitcoin Reference Rate which is a daily settlement price published as per USD price of one Bitcoin at London time 4 p.m. Designed around the architecture of IOSCO Principles for Financial Benchmarks, the Bitcoin Reference Rate is calculated by accumulating pricing data from GDAX, Kraken, Bitstamp and iBit.

Dr. Timo Schlaefer, the CEO of Crypto Facilities was recently quoted as saying, “we are excited to work with CME Group on this product and see the BRR used as the settlement mechanism of this important product. The BRR has proven to reliably and transparently reflect global bitcoin-dollar trading and has become the price reference of choice for financial institutions, trading firms and data providers worldwide.”

With this listing, CME has entered the race of becoming the foremost traditional financial marketplace offering trading facilities pertaining to instruments of extreme volatility along with rival CBOE Holdings Inc. “This is going to help tremendously with institutional support as well. That may help manage the volatility. I know that some institutionals see that as a hiccup,” said John O’Rourke the president and director of Riot Blockchain Inc in Colorado which is a Nasdaq-listed company focused on Blockchain Technology and Bitcoin.

Bitcoin Spot Market Gets A Boost

The CME CF Bitcoin Real Time Index (BRTI) published under the joint wings of Crypto Facilities Ltd. and CME Group help in ushering transparency into the Bitcoin spot market. Published in real time, the BRTI Index is tailor-made for executing intra-day Bitcoin transactions, marking portfolios and risk management. The journey of Bitcoin has surely been a glorious one starting from the time when it used to be mined in homes and for buying illegal goods using the online mode. An entire industry has cropped up centered around mining bitcoin, offering bitcoin trading services and selling digital mining equipment as of now.

At the time of publishing this article, market capitalization of the entire cryptocurrency market was around $182 Billion with Bitcoin constituting for approximately 59% of the total market reach. Bitcoin market capitalization crossed $100 Billion and was at $107 Billion. The market for Bitcoin spot has also pumped up in trading volume to $1.5 billion daily.

Following the growth trajectory of Bitcoin Derivatives, this cryptocurrency will receive solid ground for establishing itself as a premium asset class. Tom Lee of Fundstrat had earlier shared his thought regarding Bitcoin Price crossing $25,000 by 2022 if Bitcoin derivatives get launched.

Certain exchange traded fund sellers have also applied for Bitcoin ETF’s to foster easy tracking of Bitcoin futures. Chicago Board Options Exchange revealed its plan of offering cash-settled bitcoin futures within early 2018 and is currently toiling hard along with Gemini Trust for creating bitcoin indexes and derivatives.

Ari Paul, the managing partner and CIO at BlockTower Capital recently stated that, “The addition of CFTC-regulated bitcoin derivatives will bring a great deal of liquidity and legitimacy to the cryptocurrency ecosystem.” Paul emphasized upon the point that bitcoin derivatives will open up newer trading avenues for investors who cannot engage in direct Crypto transactions.


Mixed Bag

Wall Street honchos have been left divided following the legitimacy of the massive Bitcoin rally. Various large financial houses have voiced complete support in favour of blockchain and have expressed an eagerness of welcoming the same into their very own official functioning.

On the other hand certain bankers have totally deviated from this view by stating that they cannot rely on a cryptocurrency which is devoid of the government’s backing. Jamie Dimon, the Chief Executive of JP Morgan Chase & Co warned traders operating at his bank of staying away from Bitcoin by terming the same as “fraud” and that he would fire anyone found guilty of doing the same.

CME looks at Bitcoin as an unmined business opportunity housing tremendous potential. “There are lot of people who want to participate in bitcoins and the blockchain technology so it should be well-received. This should make it more comfortable for people to hold (bitcoin).” said Greg Adamsick, the director of global futures and options at Chicago based RCM Alternatives.

However launching a futures contract simply does not guarantee complete security from traction. The list of failed contracts which were once offered with much confidence by the U.S. futures exchanges include potatoes, apples, turkey, shrimp along with future contracts earmarked against specific stocks and contracts tied to inflation.

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