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The skinny on bitcoin futures

Davis MartinDavis Martin ·

The back story: Bitcoin has been skyrocketing and nearly hit $8,000 in November. The CME Group — the world’s leading and most-diversified derivatives marketplace — and the Chicago Board Options Exchange (CBOE), the largest U.S. options exchange, are looking to tap into the market with bitcoin futures contracts, recognizing that bitcoin trading easily could generate at least a billion dollars in revenue for major Wall Street exchanges.

The skinny: CME Group plans to launch bitcoin futures by year’s end, if it can resolve pending regulatory reviews. The bitcoin futures contracts would be cash-settled and based on the CME CF Bitcoin Reference Rate, serving as a one-day reference rate of BTC/USD. The CME Group is working with Crypto Facilities Ltd. and publishing the CME CF Bitcoin Real Time Index in order to increase the price transparency of the spot bitcoin market.

The CBOE partnered with Gemini — the bitcoin exchange backed by the Winklevoss twins (Cameron and Tyler of Facebook and “The Social Network” fame) — looking to get into the bitcoin-derivatives game too. The CBOE must jump through regulatory hoops too; if and when that happens, both CME Group and CBOE could help bitcoin traders and institutional investors hedge against the volatility in cryptocurrencies.

Why Penny Pro Jeff Williams is avoiding bitcoin stocks now

What’s next: Wait and see if the two agencies gain regulatory approval for bitcoin futures. The CME will be looking to implement volatility limits at 7 percent and 13 percent above or below prior settlement prices; additionally, CME would prevent trading outside the 20 percent range. This is similar to the U.S. stock and stock index futures markets.

If bitcoin futures come into play, expect more liquidity and less volatility in the cryptocurrency. This should, in turn, cause a ripple effect, potentially driving financial firms to adopt trading in the largest digital currency, further legitimizing and encouraging bitcoin as a store of value, a currency and an investment.


Davis Martin is the head trader at Dailyprofitmachine.com. He trades SPY calls and puts and swing trades individual stocks and stock options.

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