Bitcoin Futures Launch on CME Exchange

Bitcoin continues to enter the mainstream as futures trading starts on CME markets, a week after CBOE added its own trading product.

Bitcoin futures trading has just started on the CME group exchange, with a rapid price drop of 20% in the first few hours. The futures for January 2018 trade at $19,215.

At the same time, Bitcoin slid a little to $18,892 after hitting records above $20,000 following a booming week where the total cryptocurrency market valuation exceeded $600 billion.

CME relies on a Bitcoin Reference Rate, or BRR, calculated from the price of selected exchanges every day between 3 and 4 PM London time. The market then takes several volume-weighted prices and calculates a weighted median.

Read More on Bitcoin’s Rise in December:

Bitcoin $20,000: Cause for Celebration or Time to Reflect?

The futures are cash-settled, meaning no possibility for sending actual Bitcoins. The CME expects the “leading month” contract to be the most active.

In addition, experts expect the CME contract to be more active and popular compared to the CBOE futures. For now, the price of Bitcoin has shown no ill effect from a week of futures trading, and in fact enjoys more mainstream attention as more US-based investors are pouring in USD.

TD Ameritrade announced it would be one of the first brokerages to offer access to the futures. For now, it is unknown which clients would have access to the product, as trading Bitcoin would require high margins for cash settlement, because of the price volatility.

Experts believe mainstream interest in cryptocurrencies, by hedge funds or other wealth managers, may spill over to the larger economy, especially if Bitcoin incurs losses. An example by Reuters analysts includes a worst-case scenario where wealth managers would have to liquidate other assets to repay Bitcoin margins, if caught in a wild price swing.

“Several large, well-known hedge funds desperate for alpha are caught with their pants and portfolios down and with a large weighting in bitcoins and other cryptocurrencies; they lose more than 30 percent of their funds’ assets and value, and are forced to liquidate their cryptocurrency holdings and close their funds,” speculates Doug Kass of Seabreeze Partners Management.

Kass believes Bitcoin can swing wildly, from $20,000 down again to $2,000. Experts fear fund collapse may cause corrections on Wall Street stock exchanges, where even a 10% correction in a week is seen as huge. But on the other hand, even at current prices, Bitcoin only remains as large as one big corporation, and is still small-scale compared to the world of mainstream finance.

For now, hedge fund assets under management are around $4 trillion, with just $280 billion into cryptocurrencies. So a fallout in Bitcoin can mostly affect funds that participate mostly in cryptocurrencies.