Bitcoin futures hit top world exchange

Bitcoin futures are to start trading at the world’s biggest exchange, CME Group’s venue, a week after Chicago rival Cboe Global Markets introduced similar derivatives on the volatile cryptocurrency.

CME’s version could make a bigger splash because the company is a much bigger player in futures than Cboe, handling about 55 times more volume during the first nine months of 2017, according to the Futures Industry Association. Cboe has so far traded more than 10,000 contracts representing about $180m (€153m) in bitcoin. Many traders couldn’t access that contract because some brokers didn’t immediately offer them, said Garrett See, chief executive of crypto trading firm DV Chain.

Brooks Dudley, vice president of risk in New York at ED&F Man Capital Markets, said: “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.”

The CME futures are another step into the mainstream financial world for an asset created in the wake of the 2008 financial crisis as an alternative to banks and government-issued currencies.

The contracts, which settle in dollars and trade on regulated exchanges, can be bought by institutional investors that are prohibited from buying bitcoin directly on largely unregulated exchanges.

“One of the biggest issues when it comes to investing institutionally in digital assets is banks and larger institutions can’t hold an unregulated instrument in their balance sheet, and a futures contract is something they can hold,” said Gabor Gurbacs, director of digital-asset strategy at VanEck Associates. With futures, “you don’t hold the physical bitcoin, which solves custody issues and counterparty risks with these less-regulated exchanges”, he said.

To protect against wild, mistaken price swings, CME will briefly pause trading if the contracts rise or fall 7% or 13% and prices won’t be allowed to move more than 20%. Cboe also has volatility halts, which were triggered in the initial hours of trading a week ago, and its January contract rose up to 26% on the first day.

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