Institutional Investors are Swapping Bitcoin Futures for Physical BTC in Wall Street
It seems like the institutional investors at Wallstreet have also succumbed to FOMO that is related to the current Bitcoin (BTC) rally. The King of Crypto has been increasing steadily from Friday, July 13th, when it was valued at $6,200,. BTC has since gained by 34.4% to current levels of $8,335.
This impressive rally in almost 2 weeks, is the reason two Wallstreet institutional investors have completed the first-ever exchange of their positions in the CME’s Bitcoin futures market, for an equivalent amount of the ‘physical’ Bitcoin asset in an EFP transaction. According to CCN.com, the CME EFP Bitcoin transaction was facilitated by E.D & F Man Capital Markets, which is a registered futures commission merchant, and itBit, an institutional-grade cryptocurrency exchange.
According to the CME Group website, EFPs are defined as follows:
An Exchange for Physical (EFP) is a particular type of Exchange for Related Position (EFRP) transaction and may be executed in any CME equity index future in accordance with Rule 538 and any associated advisories.
The EFPs are then used by traders as follows:
EFP transactions allow investors to convert between futures and either ETFs or baskets of the underlying index constituent stocks, without exposure to intraday market execution. This not only allows investors to optimize their holdings to meet their leverage, capital, tax and liquidity needs but to also differentiate between the tool they use for trading and how they want to hold their exposure.
In an EFP transaction, two parties exchange equivalent but offsetting positions in an equity index futures contract and an underlying physical equity (either a related ETF or basket of shares). One party is the buyer of futures and the seller of the physical shares, and the other party takes the opposite position. The EFP is a privately-negotiated transaction between the two parties to the trade, where the consummated transaction must be reported to the Exchange.
These transactions are common in traditional trading, but this is the first time an EFP has been used with a digital currency as the underlying asset. The current expiration date of the CME Bitcoin futures is this Friday, the 27th of July. The EFP transaction might have been as a result of the investors seeing that BTC is on a rally rather than on a decline as earlier expected.
Brooks Dudley, from E.D & F Man Capital Markets Inc., had this to say about the trade:
Every day we facilitate EFPs for our clients in physical assets such as soybeans, wheat and treasuries. EFPs on CME Bitcoin futures mark an important step forward in the maturity of the regulated derivatives market for digital currencies.
As the cryptocurrency markets continue to evolve, EFP trades might become common. Owing to the fact that the U.S. Commodity Futures Trading Commission (CFTC) has only approved Bitcoin futures products that are settled using cash, the EFPs will provide more flexibility as to how Wallstreet interacts with digital assets.
Disclaimer: This article is not meant to give financial advice. It is an opinion piece. The opinion herein should be taken as is. Please carry out your own research before investing in any of the numerous cryptocurrencies available.