Bitcoin price pushes forward as CME Group, the world’s biggest exchange operator by market value, on 31st October 2017, announced plans to offer futures on bitcoin, thereby giving momentum to cryptocurrencies’ move into legitimacy.
The Chicago-based exchange said it was making plans on including bitcoin to its stable of futures on interest rates, currencies, commodities and stock indices by the end of the year.
Bitcoin, the biggest cryptocurrency by market cap, is controlled by computer algorithms rather than central banks, unlike mainstream currencies. Supporters applaud its traceability while critics see it as an avenue for fraud and money laundering.
Bitcoin price has exploded by over 570% this year, luring traders bored by the lack of volatility across other markets. Hedge funds, family investment offices and proprietary trading companies are dipping their toes into cryptocurrency markets now worth more than $190bn, although banks and traditional asset managers have mostly steered clear.
A lack of futures contracts has made hedging exposure to bitcoin’s wild fluctuations quite difficult. CME chief executive, Terry Duffy, said the exchange arrived at its decision “given increasing client interest in the evolving cryptocurrency markets”.
Another Chicago-based exchange operator Cboe Global Markets, in August announced plans to launch derivatives on bitcoin based on data from virtual currency exchange Gemini Trust in late 2017 or early 2018.
“The business case for us is the desire for exposure to crypto, period,” Ed Tilly, Cboe chief executive, said at a conference in October.
Both CME’s and Cboe’s contracts require approval from the US Commodity Futures Trading Commission.
Most new futures contracts fail for lack of volume. However, CME has in the past succeeded in introducing novel products, including interest rate and currency futures, with the notional value of its transactions topping $1,000tn last year.