Wednesday, November 01, 2017

CME Group to launch bitcoin futures contract amid significant market interest

By Brad Rosen, J.D.

The CME Group announced plans to launch a bitcoin futures contract later in 2017. The new contract will be cash-settled and 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, according to the CME’s release.

Terry Duffy, CME Group Chairman and Chief Executive Officer, noted, "[g]iven increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract." "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," he added.

Since November 2016, CME Group and Crypto Facilities Ltd., have calculated and published the BRR, which aggregates the trade flow of major bitcoin spot exchanges during a calculation window into the U.S. Dollar price of one bitcoin as of 4:00 p.m. London time. The BRR is designed around the IOSCO Principles for Financial Benchmarks. Bitstamp, GDAX, itBit and Kraken are the constituent exchanges that currently contribute the pricing data for calculating the BRR.

CME Group and Crypto Facilities Ltd., also publish the CME CF Bitcoin Real Time Index (BRTI), in an effort to provide price transparency to the spot bitcoin market. The BRTI combines global demand to buy and sell bitcoin into a consolidated order book, and it is intended to reflect a fair, instantaneous U.S. dollar price of bitcoin in a spot price. The BRTI is published in real time and is suitable for marking portfolios, executing intra-day bitcoin transactions and risk management.

The CFTC has also been playing an increasingly prominent role by providing traders, investors and other market participants with information on various hot topics which confront a rapidly evolving virtual currency marketplace. In mid-October 2017, the commission released a guide, A CFTC Primer on Virtual Currencies, which sets forth the CFTC’s role and oversight of virtual currencies, its enforcement authority, as well as identifying the potential risks and unique pitfalls associated with virtual currencies.

In July, 2017, the CFTC granted LedgerX, a New York-based institutional trading and clearing platform for digital currencies, registration as a derivatives clearing organization (DCO), a development described as a historical milestone in the development of derivatives trading. Meanwhile, in the enforcement realm, in September, 2017, the CFTC brought a federal court action in the Southern District of New York for the first time against a Ponzi operator involved in bitcoin related scheme.

Coincident with the CME’s announcement regarding the bitcoin futures launch, the price of bitcoin hit a record topping $6350, a daily increase of over four percent, reaching a market capitalization in excess of $105 billion. Cryptocurrency market capitalization has grown in recent years to $172 billion. The bitcoin spot market has also grown to trade roughly $1.5 billion in notional value each day.

The bitcoin futures contract will be listed on and subject to the rules of the CME. The particular launch date will depend on relevant regulatory review periods.