Cboe Global Markets’ bitcoin futures product launches today (Sunday). This will allow investors trade on bitcoin’s future price and will lead to increased activity in the market by institutions and retail investors.
Just when you thought you finally got your head around bitcoin, along comes a new bitcoin-linked financial product: bitcoin futures.
Cboe Global Markets, the Chicago-based exchange group, will be the first exchange to launch bitcoin futures on Sunday at 5:00 p.m. CT. CME Group, Cboe’s cross-town rival, will launch its market later on December 18th. And Nasdaq is preparing for a launch for the second-half of 2018.
The new product by Cboe will allow investors to bet on the future price of bitcoin, which skyrocketed to an all-time high above $17,000 on Thursday, according to data from Markets Insider. Many people think bitcoin futures, if they go well, will open the door to wider participation in the bitcoin markets by Wall Street firms and retail investors.
Cboe President Chris Concannon has already hinted other cryptocurrency futures might be on the horizon.
How do Cboe’s bitcoin futures work?
Cboe’s bitcoin futures, will allow investors to bet on the future price of bitcoin. The product will trade under the ticker XBT. Cboe will be waiving all transaction fees for bitcoin futures until the end of December. The futures will settle in cash, not the underlying cryptocurrency itself. That means traders can speculate on the coin without actually having to own it.
The pricing will be based off Gemini’s exchange, which was founded by the Winklevoss twins.
Traders will have to put some money on the table for their bets. Since bitcoin is so volatile, traders of Cboe bitcoin futures are required to have at least 44% of the bitcoin settlement price set aside for their bet. So-called margins are typical for futures, but are under 10% for the most part. Think of them as a down-payment for risk. VIX margins, however, can get up to 50% because they can sometimes have a high risk profile. Cboe’s expiration date for the contracts being sold Sunday is January 17.
How to buy.
Retail investors can buy futures contracts through their broker. But only a few firms are seriously thinking about unleashing bitcoin futures just yet. TD Ameritrade, one of the largest online brokers, is taking a “wait and see” approach and won’t provide the product for clients until they think the market is ready. It looks like folks with Charles Schwab, Fidelity, and Etrade accounts won’t be able to buy the product, at least in the short term. Ally Financial, according to Bloomberg, will let users buy bitcoin futures.
As far as the big banks are concerned, many have said they won’t clear trades for bitcoin futures. JPMorgan and Citigroup, which are two of the largest futures brokers, will not participate in the market Sunday. Nor will Societe Generale. Interactive Brokers and Wedbush will participate, according to reporting by the Financial Times.
Goldman Sachs will clear futures for some clients.
Day one trading is going to be comprised mostly of the customers who have been begging for bitcoin futures, according to person familiar with Cboe’s bitcoin futures. These are likely to be the investors who’ve been trading bitcoin itself.
Whats the big deal?
There are a number of reasons why bitcoin futures products are a big deal for the crypto world and Wall Street. The launch of bitcoin futures by establishment firms is likely to to open the door to wider participation in bitcoin trading by other Wall Street firms. It could also pave the wave for an exchange-traded fund, which could bring more investments into the space. Most importantly, it could help dampen bitcoin’s spine-tingling volatility.
Some people don’t think the underlying bitcoin market is mature enough for a futures market. The market is unstable with bitcoin exchanges under pressure and printing wildly different prices when trading volumes spike. Hacks and security problems are also widespread. Critics think that instability in bitcoin could spread to other corners of the futures markets. There is also concern amongst the crytpo community that the entrance of institutional investors will be bad for cryptos and bitcoin in particular where they will try to short it out of existence. I will leave you with the best answer I have seen to that question:
Bitcoin: my answer to the repeated questions.
No, there is NO way to properly short the bitcoin "bubble". Any strategy that doesn't entail options is nonergodic (subjected to blowup). Just as one couldn't rule out 5K, then 10K, one can't rule out 100K.
— NassimNicholasTaleb (@nntaleb) December 9, 2017