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Physically Settled Bitcoin Futures Not on the Table for CME

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October 2, 2019 | 

1206 Views | 

Darryn Pollock | 

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Even though institutionalised offerings of Bitcoin futures have been around since the end of 2020, when Bitcoin was peaking its highest price, they have only recently been garnering bigger interest and demand.

Both CME and CBOE, both Chicago-based financial institutions - raced to get their Bitcoin futures offerings out and launched at similar times. The launch did see a major fall in the price of Bitcoin, but there were more factors at play.

Now, nearly two years down the line, those two companies are seeing bigger dividends from this products launch and are reaping the rewards of allowing institutionalised investors a peak into the cryptocurrency space. CME in particular has in the last few months announced plans that speak of their increased demand. 

However, one thing that CME is not considering is launching physically settled Bitcoin futures contracts. These types of contract mean that the out come of the contract would be paid out in Bitcoin, rather than cash as is the current situation.

The reason that CME has said they are not interested in this form of contract is because one of its newest rivals, Bakkt, has started their own offering with a highly regulated futures platform that settles the contract with physical Bitcoin; a revolutionary move which has been heralded for its potential.

Not yet interested in that

In light of Bakkt’s offering, which has been called revolutionary, but is quite slow off the mark as it stands, now just over a week into trading, CME has other plans up its sleeves that does not involve physically settled coins. 

Tim McCourt, global head of equity index and alternative investment products at CME Group, told MarketsMedia that all new contracts or products are driven by customer demand and because of that, he added: “the number one demand from customers has been for options on our futures.”

 While CME has also applied to double the monthly customer positions for their Bitcoin futures, the next big move is the launch of option. The planned forthcoming options will use CME Group’s existing technology, matching engine and clearing mechanisms, and the product is currently undergoing the Group’s standard testing procedures.

Bakkt’s lukewarm entrance

Additionally, there is no real reason for CME to suddenly jump onto the idea of a physically settled contract as the offering from Bakkt, while being called revolutionary, was hadley kicked off to rapturous excitement. 

The first week for Bakkt registered some $5 million dollars - a decent figure - but relative to CME’s trading, it pales in comparison. To put this figure into context, some 4,099 Bitcoin futures contracts traded last Friday alone at rival exchange operator CME. CME has been hit with a huge influx of demand, and its futures contracts represent five Bitcoins, for a trading volume of $165 million on a single day.

Still, there is a long road to travel for Bakkt and the belief is it will gradually grow and gain more adoption and growth because of the makeup of the product. Certain commentators in the institutional space, and the cryptocurrency world, have said that these things take time. 

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