December may be remembered as the month that Bitcoin went mainstream. Just last week the first major regulated US exchange launched its Bitcoin futures contracts, albeit with a few hitches. Yesterday the second and much larger exchange CME did likewise.
CME Group has followed up from their rivals CBoE a week later and a predictable rise in the price of Bitcoin yesterday saw the crypto asset reach another record high. It nudged just over $20k moments before the Chicago based exchanged opened doors for business. The market has since corrected slightly and Bitcoin is currently trading at just over $19,000 with $13.1 billion traded in the past 24 hours. It still remains over 145% up on this time last month.
The second round of Bitcoin futures contracts was a little smoother than the launch a week ago, CME is a larger and better established exchange. It would have been primed for any traffic surge to its servers due to demand however traders seemed to be better prepared this time around, knowing how they were going to hedge.
The CME contracts are priced much more efficiently than their competitors’ products. Being based on Bitcoin valuations from four different exchanges rather than just one provided a more accurate evaluation of the current price, which can be volatile as we are all aware. Additionally contract pricing at CME was just 2% off the actual price which made them a more competitive product that CBOE’s which were priced as much as 13% off when they were launched. Prices have since stabilized as trading settled down last week.
According to CME data over 200 contracts for January 18 expiration were sold within an hour of trading and current volume stands at 639. With a contract, traders do not actually own the Bitcoin but are effectively gambling on its future price.
According to Gabor Gurbacs, director of digital asset strategy at VanEck Associates Corp;
“One of the biggest issues when it comes to investing institutionally in digital assets is banks and larger institutions can’t hold an unregulated instrument in their balance sheet, and a futures contract is something they can hold. You don’t hold the physical bitcoin, which solves custody issues and counterparty risks with these less-regulated exchanges.”
Major exchanges also offer some forms of security such as volatility protection. CME will pause trading if there are any wild price swings or 7% and 13% meaning that the total price movement will not exceed 20%.
When Nasdaq and other big financial players also start offering Bitcoin and crypto-based products, as a number have hinted at, it will spell the arrival of the crypto market to the mainstream.