As the mainstream contonues to embrace cryptocurrencies – much to the chagrin of Jamie Dimon et al. in the establishment – CME Group is “responding to client interest” and launching a Bitcoin Futures contract in Q4.
CME Group says new contract will be cash-settled, based on the CME CF Bitcoin Reference Rate (BRR) which serves as a once-a-day reference rate of the U.S. dollar price of bitcoin.
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it intends to launch bitcoin futures in the fourth quarter of 2017, pending all relevant regulatory review periods.
The new contract will be cash-settled, based on the CME CF Bitcoin Reference Rate (BRR) which serves as a once-a-day reference rate of the U.S. dollar price of bitcoin. Bitcoin futures will be listed on and subject to the rules of CME.
“Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract,” said Terry Duffy, CME Group Chairman and Chief Executive Officer.
“As the world’s largest regulated FX marketplace, CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities.”
Since November 2016, CME Group and Crypto Facilities Ltd. have calculated and published the BRR, which aggregates the trade flow of major bitcoin spot exchanges during a calculation window into the U.S. Dollar price of one bitcoin as of 4:00 p.m. London time. The BRR is designed around the IOSCO Principles for Financial Benchmarks. Bitstamp, GDAX, itBit and Kraken are the constituent exchanges that currently contribute the pricing data for calculating the BRR.
“We are excited to work with CME Group on this product and see the BRR used as the settlement mechanism of this important product,” said Dr.Timo Schlaefer, CEO of Crypto Facilities.
“The BRR has proven to reliably and transparently reflect global bitcoin-dollar trading and has become the price reference of choice for financial institutions, trading firms and data providers worldwide.”
CME Group and Crypto Facilities Ltd. also publish the CME CF Bitcoin Real Time Index (BRTI) to provide price transparency to the spot bitcoin market. The BRTI combines global demand to buy and sell bitcoin into a consolidated order book and reflects the fair, instantaneous U.S. dollar price of bitcoin in a spot price. The BRTI is published in real time and is suitable for marking portfolios, executing intra-day bitcoin transactions and risk management.
Cryptocurrency market capitalization has grown in recent years to $172 billion, with bitcoin representing more than 54 percent of that total, or $94 billion. The bitcoin spot market has also grown to trade roughly $1.5 billion in notional value each day.
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As CoinTelegraph noted previously, mainstream exchange embrace of Bitcoin could lead to less volatility and further acceptance and new opportunities.
In what can be seen as a mainstream financial world’s embrace of Bitcoin, the Chicago Mercantile Exchange (CME Group) and Intercontinental Exchange Inc. (ICE) are all set to publish data on prices of Bitcoin. CME Group is likely to start publishing this data in the fourth quarter of 2016 while ICE, the owner of the New York Stock Exchange (NYSE) is considering if it should include data from various exchanges for a daily settlement price which it has been publishing since May of 2015.
Recently Dwijen Gandhi of ICE told Reuters that NYSE will soon launch a real-time pricing index which he said would provide additional transparency and insight into the Bitcoin price.
CME Group plans two new Bitcoin products
CME Group and ICE taking the Bitcoin dive is good news for the newly established ‘Digital Asset Class’. The participation of exchanges would allow investors and traders alike to easily acquire the information that they need to trade Bitcoin with more confidence.
According to a press release dated May 2, 2016, the CME group has said that they will collaborate with Crypto Facilities Ltd, a digital assets trading platform, and that they will be developing two new products which they plan to launch by Q4, 2016.
CME CF Bitcoin Reference Rate (BRR), which will provide a final settlement price in US dollars at 4 PM London Time on each trading day and the CME Bitcoin Real Time Index (RTI), which allows for real time access to Bitcoin prices.
Cointelegraph talked with Sandra Ro, Executive Director at CME Group about how these developments would affect Bitcoin prices and she says:
“There is no current bitcoin reference rate which is considered “standard” market convention. There are many real time indices but we believe our methodology, inclusion of only the most serious bitcoin exchange data, and focus on developing digital assets will add significant credibility to the nascent digital asset market.”
It is notable that RTI will be calculated by Crypto Facilities and will be calculated based on global demand to buy and sell Bitcoin aggregated into a consolidated order book.
The Price of Bitcoin will be in US dollar terms and will be published once every second according to data made available by CME on the website.
NYSE Bitcoin index NYXBT
On the other hand, the New York Stock Exchange has already wet its feet in the Bitcoin pool by launching the NYSE Bitcoin Index (NYXBT). NYXBT is the first ever exchange-calculated and disseminated Bitcoin index according to ICE.
NYXBT uses a ‘unique methodology’ according to the ICE press release which relies on “rules-based logic to analyse a dataset of matched transactions and verify the integrity of the data to ultimately produce an objective and fair value for one Bitcoin in US Dollars at 4 pm London Time.”
NYXBT will at first take data from transactions from the Coinbase exchange. It is pertinent to mention here that NYSE had made a minority investment in Coinbase in 2015.
Thomas Farley, NYSE Group President, says:
“As a global index leader and administrator of ICE LIBOR, ICE Futures U.S. Dollar Index and many other notable benchmarks, we are pleased to bring transparency to this market. By combining our technology infrastructure with our expertise in index calculation and data management, we will continue to launch complementary products based on our rigorous standards and proprietary index methodology.”
Expect more mainstream participation and new products
It seems that the mainstream financial world is finally ready for Bitcoin. This could mean a new era in which Bitcoin could actually become THE digital asset class and could also lead to further delivery of new financial products for traders and investors.
Cointelegraph talked with Fran Strajnar, Founder and chief executive officer of BraveNewCoin (BNC), an institutional Digital Asset Data provider. Strajnar is excited about these new developments.
Strajnar says to CoinTelegraph:
“What Bitcoin and the entire Digital Asset Class needs to hit mainstream is not just consumer and application adoption but financial infrastructure and the adoption of quality market data services, by well established trading platforms.”
As for opportunities for traders in the form of new products, he thinks that because Bitcoin is global, functions like nothing else and requires a global spot price.
Strajnar expects to see two things evolve from CME’s Bitcoin reference rollout in Q4:
- Creation of various Derivative products & further ETF potential, which will help with reducing volatility.
- A disparity between US Dollar denominated Bitcoin trading activity and other BTC trading pairs, seeing as the CME index only includes BTC/USD trading. A good arbitrage opportunity will come out of this.