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CME Sees Bitcoin Interest Growing

CME Group said institutional interest in bitcoin is increasing as the US derivatives exchange plans to launch options on its bitcoin futures next year.

The exchange said in a statement this month that it will launch options on its bitcoin futures contracts in the first quarter of 2020, pending regulatory review.

Tim McCourt, global head of equity index and alternative investment products at CME Group, told Markets Media: “Since we launched bitcoin futures in December 2017, the number one demand from customers has been for options on our futures.”

CME continued there have been 20 successful bitcoin futures expiration settlements and more than 3,300 individual accounts have traded the product since inception. So far this year, nearly 7,000 CME bitcoin futures contracts, equivalent to about 35,000 bitcoin, have traded on average each day the number of large open interest holders reached a record 56 in July.

Tim McCourt, CME Group

Tim McCourt, CME Group

“Building a new futures market is hard and we have been hugely successful with $1.3bn (€1.19bn) of bitcoin futures traded in May,” added McCourt. “We have already delivered on milestones and the introduction of options will help develop the ecosystem.”

The new options can use CME Group’s existing technology, matching engine and clearing mechanisms. McCourt said the exchange is currently going through its standard testing procedures.

He continued that institutional participation in CME’s bitcoin futures is balanced between hedge funds, CTAs and asset managers. CME has also attracted crypto-only hedge funds and trading firms

“The institutional interest in bitcoin is growing but they need time to become familiar with the market and get approval to use new products,” said McCourt.

CME Group’s bitcoin futures contracts are settled in cash and the new options will be settled in bitcoin futures so they can be used for hedging strategies.

Bakkt bitcoin futures

Last week Bakkt, owned by rival exchange ICE, launched bitcoin futures which are physically settled. Contracts settle through the Bakkt Warehouse, a qualified custodian that is regulated by the New York Department of Financial Services.

McCourt said CME has no current plans to launch physically settled contracts, but new contracts are based on customer demand.

Kelly Loeffler, chief executive of Bakkt, said in a blog on the day of the launch that it was an important step toward bringing trusted infrastructure to digital assets.

“As institutions enter this emerging asset class, they will continue to look to secure infrastructure and the regulatory certainty that it provides,” she added. “Importantly, these futures contracts now serve as benchmarks established by a trusted price discovery process upon which investors can rely.”

Kelly Loefler, Bakkt

She continued that digital currency represents both new technology and new financial instruments, and trust is central to the adoption of both.

“With operations, cybersecurity and controls, along with end-to-end-regulation demanded by investors and consumers, confidence in using digital currency — not just to invest, but to also use in transacting — will grow,” she said.

Scott Freeman, a founding partner at JST Capital, told Markets Media last week: “Bakkt, and other exchanges like this, are all great for the market. It makes it easier for those who have the interest to access the markets and get introduced to it when they might not have a way to do it otherwise.”