CME Future Option Has Gained Momentum but Can It Hold In The Long Run


It has been two years since the launch of cash settled BTC futures have been launched, CME has made a name for itself in the regulated crypto derivative space despite not always been the first to take the opportunity the market provides. The company launched its first Bitcoin Futures in the year 2017 (December), just after the it’s rival exchange had introduced their own crypto future. The closest rival is the CBOE. However, it only took around 15 months for CBOE to completely withdraw from the market and by August of next year the number of transaction in the CME platform soared to a record high. Bakkt is the latest to take advantage of CME, when they launched the regulated option for the Bitcoin Futures. However, after successfully launching its own options contract on Jan 13 this year, it seems that Chicago based CME group is once gaining the upper hand. On the first day of the contract was launched the number of transaction volume reached a high of $2.3 million, which is more than five times that that of its major competitor Bakkt, which traded just over $380,000. According to the data analyzed by the Skew, which tracks these data, the CME volumes are still way below that that of Deribit, which traded more than $30 million in options the very same day CME, launched its option products.

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However, it’s worth noting that until mid-2019, Deribit was the only organization that was offering crypto back option in the market.  Just after the launch of the option product, the chief of the CME told the press that he was very happy and pleased to see the response the market have given which was evident from the opening day performance and the transaction volume. First day was a blockbuster while the volumes were not as good or impressive the second day. According to the market data, the volume of transaction was around $730 million. Perhaps that was normal as the investors interested on purchasing CME security would have bought on the day of the launch. In the lead up to Jan 13, CME saw a rise in trading volume for Bitcoin futures. The first four day in trading days of 2020 showed that interest among investors had almost increased exponentially when compared with the 2019 yearend figures. Analyst from top investment bank were quick to point out that this surge in interest among the investors can be attributed to highly expected launch of the option contract by CME.

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The reason for the high excitement was because the asset underlying the CME option vehicle was not Bitcoin but Bitcoin futures. Options are special security that allows the investor to hedge their risk on an underlying asset and futures are inherently risky. Therefore the upcoming ability to hedge may explain ability to hedge may explain why so many traders were eager to get their hands on the underlying asset. The difference may also lie in the way these future securities are settled.  This can be reason why the contract issued by both Bakkt and CME are trading differently. This is evident in both future trading and now in options on Bitcoin futures. The trading volume differentiates between CME and Bakkt when it launched indicates that institutions prefer their Bitcoin future to be settled in cash. This is logical given that cash settled contracts avoid the need to take the custody of the Bitcoin themselves. Although crypto custodial services are now far more widely available, many institutions will still find it easy to deal with fiat currencies.

Source: Coin Telegraph

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