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Trading  | December 17, 2017

Following last week’s ‘successful’ launch of Cboe Bitcoin futures, CME will begin trading of their own ‘more institutional’ Bitcoin futures contract today.

Here are some of the differences between the products to be offered by the exchange operators.


  • The Cboe Bitcoin Futures Contract will use the ticker XBT and will equal one bitcoin.
  • The CME Bitcoin Futures Contract will use the ticker BTC and will equal five bitcoins.


  • Both Cboe’s and CME’s bitcoin futures contracts will be settled in U.S. dollars, allowing exposure to the bitcoin without actually having to hold any of the cryptocurrency.
  • Cboe’s contract will be priced off of a single auction at 4 p.m. Eastern time (2100 GMT) on the final settlement date on the Gemini cryptocurrency exchange.
  • CME’s contract will be priced off of the CME Bitcoin Reference Rate, an index that references pricing data from cryptocurrency exchanges, currently made up of Bitstamp, GDAX, itBit and Kraken.


  • Cboe’s XBT contract will trade on CFE, with regular trading hours of 9:30 a.m. to 4:15 p.m. Eastern time on Mondays and 9:30 a.m. to 4:15 p.m Tuesday through Friday. Extended hours will be 6 p.m. Sunday to 9:30 a.m. Monday, and 4:30 p.m. Monday through to 9:30 a.m. Friday.
  • CME’s BTC will trade on CME Globex and CME ClearPort Sunday to Friday from 6 p.m. – 5 p.m. Eastern time with a one-hour break each day beginning at 5 p.m.


  • Cboe’s contract will clear through the Options Clearing Corporation and a 44 percent margin rate will apply.
  • CME’s contract will clear through CME ClearPort and will have a 35 percent initial margin rate.


  • Cboe said it may list up to four weekly contracts, three near-term serial months, and three months on the March quarterly cycle.
  • CME said it will list monthly contracts for the nearest two months in the March quarterly cycle (March, June, Sept., Dec.) plus the nearest two serial months not in the March quarterly cycle.


  • Cboe will halt trading in its contract for 2 minutes if the best bid in the XBT futures contract closest to expiration is 10 percent or more above or below the daily settlement price of that contract on the prior business day.
  • Once trading resumes, if the best bid in the XBT futures contract closest to expiration is 20 percent or more above or below the daily settlement price of that contract on the prior business day, the futures will be halted for 5 minutes.
  • CME will apply price limits, also known as circuit breakers, to its bitcoin futures of 7 percent, 13 percent, and 20 percent to the futures fixing price. Trading will not be allowed outside of the 20 percent price limit.

Sources: Reuters, Cboe, and CME

The last week was likely a disappointing one for the status-quo-supporters as the ‘unleashing’ of futures contract that would enable shorting of Bitcoin and bring an end to the “well it’s a bubble” surge in cryptocurrency… failed to materialize.

In fact, bitcoin rallied notably, despite compression of the spot-arb, to a new record high…

JPMorgan’s Nikolaos Panigirtzoglou notes that thus far the volumes of Bitcoin futures traded have remained rather modest. The first full day of trading on Dec 11 saw around $77mn of volume across the three traded contracts, after which volumes have declined with Dec14 totaling at just over $20mn. This compares to an average Bitcoin transaction volume of $13bn per day over the same period across cryptocurrency exchanges,according daily volume data from The intraday data available on futures volumes suggest that during the first day of trading, the majority of the volume was concentrated in Asian trading hours (Figure 5).

Since then, the volumes have tended to be concentrated in US trading hours, though on Friday volumes have been more spread out over different time zones.

When trading first started, the most striking feature was the wide basis between the futures contract and the underlying bitcoin prices.

At its widest, the basis was around $2065 based on 5 minute intraday ticks, or more than 12% of the underlying price at the time, and averaged around 8% on Dec 11 overall. Since then, it has gradually declined during the week to average around 3% on Dec 14 and thus far on Dec 15. Given the futures contracts are for settlement in months ahead, some margin will persist as a function of interest rates and convenience yields, i.e. the benefit or premium associated with holding the underlying asset rather than a financial claim on it, similar to that of commodity futures.

There are a number of potential factors that could put upward pressure on this convenience yield, keeping the futures contracts trading above spot prices.

First, cash settlement of the futures contracts arguably provides a somewhat less tight link to the underlying asset than if it were physically settled. In addition, some participants might prefer to have the option of taking physical delivery of Bitcoins, similar to how commodity futures have traditionally been settled, rather than delivery in cash that then has to be converted to Bitcoin separately.


Second, quoted prices for Bitcoin on various cryptocurrency platforms as well as on Bloomberg are typically quoted as an average across a number of exchanges. By contrast, the CBOE futures contracts are settled on prices from only one exchange (Gemini). The use of a single exchange may introduce some additional volatility in the futures price.


Third, there may be some investors who have been unable or unwilling to buy bitcoins on unregulated exchanges that are more willing to use regulated futures exchanges (though e.g. several Japanese Bitcoin exchanges are also regulated), or wish to avoid having to open separate wallet accounts instead preferring to use existing arrangements via futures exchanges. This could see prices at which the futures market clears biased higher than on cryptocurrency platforms until these investors have increased their exposure closer to a desired level.

As CME Bitcoin futures begin trading today, there will be competition between the two exchanges to attract volumes. Similar to the CBOE contract, the CME futures are cash settled, and after reviewing the initial margin requirement ahead of launch the CME raised it this week from 35% to 47% for speculative accounts, modestly higher than the CBOE’s 44% initial margin requirement.

So the question is – what will happen when the bigger CME Bitcoin futures contract starts trading?

CME’s bitcoin contract may not be first, but they are a larger futures clearinghouse and we are looking forward to our clients trading their product on Sunday evening,” Brooks Dudley, vice president of risk in New York at ED&F Man Capital Markets, told Bloomberg.


“Not all market participants have been able to short the Cboe bitcoin futures. We have allowed our clients to go long or short to take advantage of dislocations between the futures and the underlying spot market.

As CoinTelegraph explains, there is a case for the bulls and the bears…

Short theory


It is well known that a minority of Bitcoin holders–the whales— hold a majority of the Bitcoin in circulation. It is rumored that roughly 1,000 people own 40 percent of all the Bitcoin. It is possible that the whales took a short position in their contracts, meaning they believe the price of the Bitcoin futures contract will be below the contracts purchase price at the date of expiration.


Because a whale might have unfathomable amounts of money and the belief that their contract will expire at a value less than the price they purchased the contract for, it would not be surprising if the whales pumped up Bitcoin price in the days leading up to the contract expiration date by buying more Bitcoin, and then sell off a large chunk of it on an exchange at the inflated price – hours before their contract expires.


The whale would experience a capital gain from driving the price up and selling off, and because this could cause Bitcoin price to plummet, the whales futures contract(s) are likely to expire below the contract purchase price, meaning the whales with short contracts would experience a capital gain from their futures contract in addition to that from selling off the actual asset (Bitcoin). In the days shortly after the first futures contracts expire, it would not be surprising to see the whales who took short positions use their profits from trading on exchanges and the futures market to buy back Bitcoin at the discounted price that they might have caused the market to drop down to.


Long theory


Or… it is possible for the opposite to happen. Maybe the whales and investors have taken a long position; meaning they believe the price of the first Bitcoin futures contracts will finish above the price they were purchased at. Instead of selling off a large chunk of their Bitcoin right before the contract expires, the whales would continue to pump up Bitcoin price by buying more Bitcoin leading up to the contract’s expiration to ensure that their contract will finish above its purchase price.


Although this is possible, it does not seem as plausible as the short theory. If whales went long and colluded to pump up Bitcoin price, they would not have the opportunity to buy back coins at a discounted price–this does not seem like a logical position for an experienced investor to be in nine days before CME Group’s first Bitcoin futures contracts expire… unless the whales postpone the short until CME Group’s first expiration date.


Or maybe…


Similar to futures contracts and the majority of Bitcoin price lately, this is pure speculation. Maybe nothing will happen at all and I’m over thinking how the market will react, maybe Jan.17 and 26 will not be significant dates for the Bitcoin economy. However, this is not my first rodeo. And if you’ve been a member of crypto community for quite some time now, you could see that the days leading up to a new or major event in the Bitcoin economy and the days shortly after are more than likely to see significant movements in Bitcoin price.

Finally, we note that, as Bloomberg points out, banks and brokers who are offering access are being cautious.

Goldman Sachs Group Inc. demanded some clients set aside collateral equal to 100 percent of the value of their trades, people familiar with the investments said last week.


The guidelines are inclusive of other margin requirements such as Options Clearing Corp.’s 44 percent, required to clear contracts traded at Cboe, and the 47 percent CME is demanding.


It’s not uncommon for a brokerage to impose steeper requirements than the exchange. Interactive Brokers Group Inc., which has said it handled 53 percent of the first day’s trading in Cboe’s bitcoin futures, will require a margin of 50 percent for long investments, and about 240 percent for short selling, based on current rates, according to Interactive Brokers spokeswoman Kalen Holliday.

The settlement price of the CME futures will be based on a weighted average of prices from several exchanges (including Bitstamp, GDAX, itBit and Kraken), rather than a single exchange. The settlement dates of the CME futures will also extend further ahead to March, June, September and December. These factors, along with the fact that the CME is a larger exchange, could give it an advantage in terms of attracting trading volumes.

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