Bitcoin futures trading will begin later this month, marking a potential watershed for the cryptocurrency market.
CME Group CME, +1.45% the world’s largest futures exchange, said it would launch its contract on Dec. 18. Earlier, the Commodity Futures Trading Commission said it would allow listings by the CME and the rival CBOE Futures Exchange, as well as a new contract for bitcoin binary options from Cantor Fitzgerald.
“We are pleased to bring bitcoin futures to market after working closely with the CFTC and market participants to design a regulated offering that will provide investors with transparency, price discovery, and risk transfer capabilities,” said Terry Duffy, CME Group chairman and chief executive, in a news release.
Bitcoin’s volatility was on display this week. The price soared to an all-time high above $11,000 early Wednesday, then plunged by more than $2,000 before recouping some losses. Bitcoin BTCUSD, +7.84% rose after the CFTC announcement, with a coin fetching $10,502.75 in recent action, up 5.9%, according to tracking site CoinDesk.
Duffy said the exchange recognized that bitcoin represents a “new, uncharted market” that will require continued collaboration with regulators and market participants. He said the contract would be subject to a variety of risk management tools, including an initial margin of 35% as well as position and intraday price limits.
Bitcoin’s volatility has caused heartburn for some derivatives traders, who have questioned the wisdom of bitcoin futures. In an ad in The Wall Street Journal last month, Interactive Brokers Chairman Thomas Peterffy argued that “margining such a product in a reasonable manner is impossible.”
In a statement, CFTC Chairman J. Christopher Giancarlo said bitcoin “is a commodity unlike any the commission has dealt with in the past.
“As a result, we have had extensive discussions with the exchanges regarding the proposed contracts, and CME, CFE and Cantor have agreed to significant enhancements to protect customers and maintain orderly markets,” he said.
Giancarlo said market participants should remain aware that underlying cash markets and exchanges for bitcoin remain largely unregulated markets over which the CFTC has limited statutory authority and acknowledged concerns about price volatility and trading practices in those markets.
He said the CFTC expects the futures exchange to monitor trading activity on cash platforms for potential impact on the price discover process for futures contracts, including potential market manipulation and market dislocations due to flash rallies and crashes and trading outages.
“Nevertheless, investors should be aware of the potentially high level of volatility and risk in trading these contracts,” he said.
Source : https://www.marketwatch.com