With world in grip of bitcoin mania, CBOE overtakes US rival in race to offer futures first
Cboe Global Markets upstages US rival CME Group by launching its ‘XBT’ futures eight days earlier on December 10 and plans to offer trading for free through the month to build liquidity in the cryptocurrency
Cboe Global Markets has jumped ahead of its rival to become the first exchange in the world to launch bitcoin futures trading from December 10, as major exchanges join the bandwagon to exploit the cryptocurrency craze sweeping over investors.
Analysts said the moves by prominent exchanges to embrace bitcoin indicate that institutional investors’ demand for the digital currency is increasing, which could give bitcoin more credibility and possibly fuel its prices further.
The Cboe Futures Exchange (CFE) said on Monday night it plans to offer trading in bitcoin futures beginning 5pm North American Central Standard Time on Sunday. Trading will be free through December.
The move comes soon after CME Group, the parent of Chicago Mercantile Exchange, announced last week it would launch bitcoin futures on December 18.
“Given the unprecedented interest in bitcoin, it’s vital we provide clients the trading tools to help them express their views and hedge their exposure,” said Ed Tilly, chairman and chief executive officer of Cboe Global Markets. “To promote this, we will initially offer XBT [bitcoin ticker symbol] futures trading for free.”
Kieran Hauenstein, a Melbourne-based dealer at IG Group, said the race between the two exchanges is very interesting, as both offer similar margin and have a maximum size of 5,000 bitcoin.
Cboe has raced ahead to become the first exchange to launch the futures, possibly hoping that they will have more liquidity, he said.
“The fact the these exchanges have been getting so much demand from institutional investors shows the demand for bitcoin isn’t slowing down soon,” said Hauenstein. “In fact, large players are looking to get into the markets, but have been restricted by the technology and counterparty risks.”
Bitcoin has spiked more than 1,000 per cent this year to above US$11,000, although some sceptics feel the digital currency is a bubble that could burst any minute.
Cboe’s bitcoin futures, which will trade on the CFE are cash-settled contracts based on the auction price from Gemini Trust, a digital currency exchange.
In contrast, CME’s bitcoin futures contracts are against an index that is currently based on four bitcoin exchanges – Bitstamp, GDAX, itBit and Kraken.
Hauenstein said the launch of related futures by prominent exchanges could give bitcoin more credibility.
“Large funds or institutions will be grateful to hear the news, as many of them will have access to trade CME/Cboe futures contracts and will easily be able to add bitcoin to their portfolios. The liquidity offered on these exchanges will also allow them to build up sizeable positions.”
Stephen Innes, head of trading for Asia Pacific at Oanda, said CME’s acceptance seems to have lit a fire under Wall Street.
“Intense media coverage is also supporting the bitcoin rally, which has caused investors’ pervasive apprehension that they’re missing the party, or the underlying fear of losing out of a quick profit. ”
He expected more institutional players to enter the market.
“Having bitcoin on a regulated exchange broadens its legitimacy and credibility as hopefully more of the larger know primary market makers will enter the game.
“While I suspect we’re still ways off of having institutional grade level liquidity, I think provided there is a favourable lift off, bitcoin could surge higher.”
However, “it’s not all a bed of roses.”
“Government agencies will likely clamp down on excessive margin given the hyper-volatility and potential losses non-sophisticated investors may encounter. ”
“This brings me to my biggest fear for retail clients that when the masses identify the trend, it’s usually a sign the market has topped now. Whether or not this holds true in this crazy bitcoin ramp, only time will tell.”