Since launching in December of 2017, Bitcoin futures have not excited the market quite as expected.
There are two exchanges trading Bitcoin futures, the CME and CBOE, but trading activity is not what investors thought it would be. In total, both exchanges traded only 9,000 contracts a day in the third quarter of 2018, a fraction of what’s done on traditional futures markets.
Although CME activity is steadily growing, it’s not as earth shattering as people believed in 2017. When these contracts launched, investors expected them to open with huge trading volume, but “the market just wasn’t ready for that to happen,” says Michael Unetich, VP of Cryptocurrencies at Chicago-based Trading Technologies International Inc.
The CME and CBOE futures could well have been what prompted the cryptocurrency bull run last year. Many believed that CME & CBOE had to buy Bitcoin in order to fund their futures contracts, or that once the futures contracts launched, Wall Street would pump the price using futures. The reality was far from those expectations, as Bitcoin topped out the very week that futures launched.
The CBOE started trading their product on December 11. That day, BTC spiked from $15,000 to $18,000. The CME launched their futures next, on December 18, when BTC was at $18,000. Bitcoin’s top was right in the middle, on December 16, when it reached $19,870, as per CryptoCompare:
BTC-USD, December 2017, From CryptoCompare
Wall Street knows that the contracts have not met expectations:
It has not been what you would call a roaring success...Institutional players have stayed on the Bitcoin sidelines, and as long as they are, the futures contracts are likely not to generate substantial amounts of volume.
Many are wondering why big players have stayed away from these futures contracts. Some think there’s too much risk involved, and that the cryptocurrency market causes more noise than impact. Chris Concannon, CBOE’s Chief Operating Officer argued:
"there’s been more articles than volume...It’s a little bit shocking to me the attention this market gets versus its size...The entire crypto market is a fifth of Apple.”
In addition to the inherent risk of Bitcoin, the contracts are expensive. While CME’s flagship S&P 500 futures require 4% margin, the Bitcoin futures require 40% initial margin. This means that investors have to put up ten times as much capital in order to enter a trade. Despite this issue, professionals are confident that the product will grow with time.
Brad Koeppen, head of crypto trading at CMT Digital, compares the BTC futures to the VIX futures, which allows users to trade the volatility of the market. These VIX futures took years to gain ground, “but that is now a very successful product for the Cboe, and there are a lot of ETFs based off of it, and there’s a whole asset class around it,” Koeppen says. “These Bitcoin futures will get to the same place. People just forget how long it took for the VIX.”