Beginning with the founding of the Chicago Board of Trade (CBOT) in 1848, Chicago has a long and illustrious history as a trading town. The CBOT introduced standardized futures contracts, and more than a century later spun off the CBOE which pioneered standardized option contracts. The Chicago Mercantile Exchange launched in 1898 as an egg & butter exchange and in 1972 spun off the International Monetary Market, the first exchange to trade financial futures. For the past 45 years, the CBOT, CBOE, & CME have established Chicago as the derivatives capital of the world trading both options and futures on grains, meats, stocks, bonds, foreign currencies, and other financial products.
Fast forward to 2018 and Chicago is once again leading the charge as it has begun to trade derivatives on a revolutionary new product. In December 2017, both Cboe Global Markets and the CME Group began trading futures on bitcoin. The two derivative exchanges are the most prominent local enterprises to enter the cryptocurrency markets but an entire ecosystem has begun to emerge in Chicago and is rapidly gaining momentum.
Chicago is home to a number of spot exchanges which trade the cryptocurrencies that underlie the derivative contracts. Athena Bitcoin operates more than 70 crypto ATMs in 8 states across the USA and has entered Latin America. Digital Mint has over 70 crypto ATMs in Chicago alone and close to 200 nationwide. Bcause runs the largest mining operation in North America and is building the world’s first full-stack cryptocurrency ecosystem. Seed CX offers institutional trading and settlement for both spot and derivatives in cryptocurrencies. Beaxy aims to create an all-in-one cryptocurrency exchange. The Eris Exchange, which is backed by Cboe Global Markets, DRW, ED&F Man Capital Markets, NEX Opportunities, Susquehanna, TD Ameritrade, Valor Equity Partners and Virtu Financial, is launching a platform to trade both spot and futures which will settle with the physical delivery of cryptocurrency. Edge Financial Technologies is on target to launch a cryptocurrency platform for both retail and institutional traders in the first quarter of 2019. CFX launched the first platform in the U.S. to facilitate the trading of regulated security tokens. The Bitnomial Exchange is waiting for approval from the CFTC.
Exchanges from other cities are establishing a foothold in Chicago, too. Coinbase opened a permanent office in Chicago and announced plans to hire 90 software developers in the next three years. The San Juan Mercantile Exchange is launching the world’s first digital asset exchange for high frequency traders and plans to open offices in three cities including Chicago.
Why are Kraken, Coinbase, and the San Juan Mercantile Exchange coming to Chicago? The answer is that they want access to our trading community with its abundance of resources including traders, liquidity, technology, and developers. According to Paul Bauerschmidt, former CME executive and leader of Coinbase’s Chicago office: “Chicago is super valuable to us because of the talent that’s here. If you move to one of the coasts, you…will get access to talent, but it’s much harder to come by. And, in Chicago, we’ve got an incredible exchange and trading community.” And, according to Fred Grede, CEO of Bcause: “They’re starting to figure out that the real center of liquidity in these kinds of markets is right here in Chicago, and that it’s a tremendous pool of resources. I don’t mean to get into any disrespect for New York.”
DRW, founded by billionaire trader Don Wilson, was the first trading firm in Chicago to jump into the crypto space. In 2014, DRW spun off Cumberland Mining which runs the largest over-the-counter cryptocurrency trading desk in the world. In 2017, Akuna Capital, Blue Fire Capital, CMT Digital, DV Trading, and Consolidated Trading launched cryptocurrency trading desks. In January 2018, Trading Technologies announced a partnership with Coinbase to provide cryptocurrency trading in both spot and derivative markets. In April 2018, Hehmeyer Trading launched the first cryptocurrency index fund. Jump Trading, the largest trader of U.S. Treasuries in the world, ‘jumped’ into cryptocurrency trading in mid-2017 and, in June 2018, launched an over-the-counter cryptocurrency trading platform. XR Trading and TransMarket Group also began trading cryptocurrencies in 2018. Geneva Trading is in the process of forming a cryptocurrency trading team.
In summary, Chicago has all the ingredients to become the ‘Crypto Trading Capital of the World’ with its abundance of derivative exchanges, spot exchanges, traders, investors, developers, etc. One of the keys will be to bring together the major players in Chicago’s emerging crypto ecosystem to foster collaboration. There is competition to be sure among the various players but there is also such a thing as co-opetition. As the saying goes, a rising tide lifts all boats. For many years, the CBOT, CME & CBOE have competed against each other but find another city or region in the world which could boast three of the biggest and most successful exchanges on the planet.
Stay tuned as FinTank (FinTank.org), a local Fintech hub and accelerator specializing in crypto assets, is getting ready to facilitate collaboration by launching Chicago’s first online crypto community for traders, investors, miners, entrepreneurs, developers, consultants, senior-level executives, and other blockchain/digital currency players and enthusiasts. FinTank is partnering with two startups in its accelerator—Crypto Markets and Coinifide —to build a platform that offers in-depth content, experiential learning, and job leads to enhance the knowledge, skill set, and economic opportunities for participants in Chicago’s burgeoning crypto community.