The largest stock exchange in the world has just joined the bitcoin revolution.
Bitcoin futures began trading on Sunday night on CME Group Inc., a week after Cboe Global Markets, its Chicago rival, introduced similar derivatives into the volatile cryptocurrency. CME is a much larger player in futures, so many traders expect it to make more room in the nascent space.
CME started faster with more efficient prices. His most active contract changed hands 221 times in the first hour against 570 in the debut of Cboe. But that's a win because CME contracts have five times more value – they are tied to five bitcoins compared to one with Cboe futures. And CME futures were only selling at about 2% more than bitcoin itself; On the first day, Cboe got up to 13% more, a sign exchange was relatively ineffective.
Bitcoin jumped to $ 20,000 in the minutes before trading started at CME, before making any gains. It was estimated at $ 18,336 that the CME contract reached $ 18,610 at 8:19 pm. New York time.
"People were better prepared" for the start of trading at CME, said Bobby Cho, chief of trade at Cumberland, the cryptocurrency trading unit of DRW Holdings LLC. "They knew how they would cover their positions."
CME and Cboe bitcoin futures have distinct characteristics. The price of Cboe's product is derived from the price of single-currency cryptocurrency; CME is based on four.
"We were waiting for the launch of the CME futures contract because the price is more robust and the exchange is trading much larger volumes," said José Miguel Nascimento, chief negotiator of the Solidus Capital cryptocurrency fund. "Futures are a very positive development for the Bitcoin market because they will help everyone from miners to traders to hedge risk, and a price curve will help limit price fluctuations."
CME futures are another step in the mainstream financial world for an asset created in the aftermath of the 2008 financial crisis as an alternative to the banks and currencies issued by the government. Contracts, which are settled in dollars and traded on regulated markets, may be purchased by institutional investors who are prohibited from purchasing bitcoin directly in largely unregulated markets.
"One of the biggest problems when investing institutionally in digital assets is that banks and large institutions can not hold an unregulated instrument in their hands. balance sheet, and a futures contract is something that they can hold, "Gaboracs said. Director of Digital Asset Strategy at VanEck Associates Corp. With futures, "you do not hold the physical bitcoin, which solves custodial issues and counterparty risks with these less regulated trades."
To guard against unanticipated price fluctuations, CME will briefly suspend trading if contracts increase or decrease by 7% or 13%, and prices can not fluctuate by more than 20%. The Cboe also has volatility stops, which were triggered in the early hours of trading a week ago, and its January contract rose up to 26% on the first day.
The Cboe website was blocked when it was launched. CME appeared to be dealing with traffic.
"It's only a-lot," said Garrett See, CEO of the DV Chain Encryption Company of CME's first exchanges. "Prices are changing fairly quickly." The order book was rather thin and "the orders that are there are very small."
Futures open up arbitrage opportunities – the possibility of betting derivatives prices and the underlying cryptocurrency will converge. Last week, the price of Cboe's product was 13% higher than that of bitcoin, but it quickly narrowed. On Sunday night, it was similar to CME's.
Some brokerages did not immediately give customers access to future bitcoin. TD Ameritrade Holding Corp. announced Friday that it would offer Cboe's startup on Monday, but it will wait to offer CME's contracts until they demonstrate sufficient liquidity. E * Trade Financial Corp. plans to offer futures on bitcoin, according to a person who knows the subject well and who asked not to be named.
"We are looking at volume, interest rates and spreads, and we want to make sure all these conditions are mature," said JB Mackenzie, general manager, TD Ameritrade futures trading. "We had a lot of interest for the customers, and we spent a lot of time educating them about the differences between the two products."
Banks and brokers offering access are cautious. Goldman Sachs Group Inc. has asked some customers to set aside guarantees equal to 100% of the value of their transactions, people aware of the investments said last week. The guidelines include other margin requirements such as 44 percent of Options Clearing Corp., needed to offset the contracts traded at Cboe, and the 47 percent of CMEs are demanding.
It is not uncommon for a brokerage firm to impose stricter requirements than the exchange. Interactive Brokers Group Inc., which reported trading 53% of the first trading day on Cboe's term bitcoin, will require a 50% margin for long-term investments, and about 240% for short-selling. , according to Interactive Spokesman Kalen Holliday Brokers.