Latest Research Shows Why CBOE Had to Concede the Bitcoin Futures Game to CME

On Tuesday (March 19th), the research arm of leading crypto market data aggregator CryptoCompare released the February 2019 edition of its Exchange Review report, which makes it clear why Cboe decided earlier this month to suspend offering its Bitcoin futures product—Cboe Bitcoin (USD) Futures (XBT)—until further notice.

As CryptoGlobe reported, on March 14th, the Trade Desk of Cboe Futures Exchange (CFE), a wholly-owned subsidiary of Cboe Global Markets ("Cboe"), issued a product update notice that said:

"CFE is not adding a Cboe Bitcoin (USD) ('XBT') futures contract for trading in March 2019. CFE is assessing its approach with respect to how it plans to continue to offer digital asset derivatives for trading. While it considers its next steps, CFE does not currently intend to list additional XBT futures contracts for trading. Currently listed XBT futures contracts remain available for trading."

Is there really so little demand for Bitcoin futures in the U.S. that there is no point in any derivatives exchanges there offering Bitcoin futures contracts?

Well, Cboe's major rival, the CME Group ("CME"), does not seem to think so. As Coindesk reported on March 15th, "It’s business as usual for CME Group’s bitcoin futures market." A spokesperson for CME told them on this day that the exchange had “no changes to announce re our bitcoin futures contract."

So, how does CryptoCompare's latest monthly Exchange Review help us understand Cboe's decision to leave the Bitcoin futures market and the CME's decision to stay in it?

According to CryptoCompare's research report, from January 2019 to February 2019, while Cboe's Bitcoin futures trading volumes decreased from a daily average of $8.1 million USD to $5.6 million, i.e. a decline of around 31%, for the CME, the daily average increased over 23% from $79.9 million to $98.9 million, as can be seen in the following chart:

CC ER Feb 2019 - Fig 4.png

Another interesting fact that these numbers show is that in February 2019, Cboe's average daily trading volume was just a tiny fraction of the CME's (i.e. $5.6 million vs. $98.9 million).

Although Bitcoin futures trading volumes on exchanges based in the U.S. remain far lower than those outside the U.S. (such as Japan's bitFlyer Lightning or the Seychelles' BitMEX), the CME Group did better in January 2019 than in December 2019 and improved its business again in February 2019.

Market participants that Coindesk spoke to on March 15th offered various explanations of why the CME Group has been doing so much better than Cboe in the Bitcoin futures market. For example, Lanre Sarumi, the CEO of crypto derivatives exchange Level Trading Field told them that one reason "could be the difference in how the two exchanges approached the product and marketed it." He explained that "CME made its product available to a larger group of traders from the very beginning" by putting its product on the CME Exchange, which "offers a lot of products and asset classes enjoying large daily volumes," while Cboe puts its product on CFE, where "people mostly trade Cboe Volatility Index (VX) Futures."

Sarumi also said that another advantage the CME Group has is the "price discovery method": "while Cboe’s relies on an auction at the Gemini exchange, CME settles to an aggregate price of several spot markets, which might look more reliable to traders."

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