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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Bitcoin Price Surges Above $9,300 for First Time Since June 25

On Monday (July 6), the Bitcoin price managed to surge past the $9,300 level for the first since June 25, a move that was likely powered by the current bullish in the stock markets of China and the United States.

Today's strong rally in the world's major stock markets started was led by China, where the Chinese government is apparently encouraging investors to buy stocks.

According to a report by CNBC, "a front page editorial in state-owned China Securities Journal" (publishe-d earlier today) talked about the “wealth effect of the capital markets” and suggested that a “healthy bull market" was important for the economy at this time.

Peter Boockvar, chief investment strategist at Bleakley Advisory Group, says:

"We have the Fed to juice bull markets, China has its state media."

The CSI 300, which is "a capitalization-weighted stock market index designed to replicate the performance of the top 300 stocks traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange", closed over 250 points higher at 4,670.09, up 5.67%. 

CSI 300 Chart by Google Finance on 6 July 2020.png

As you can see in the above chart from Google Finance, in the past five trading session, the CSI 300 index has gained over 13%, the most in a five-day period since December 2014, and helping the CSI 300 to reach a level last seen in June 2015.

CNBC says that although "China’s economy faces many hurdles, including trade issues with the U.S. and the growing friction as the economies move to decouple",  in the near term, "the prospect of an improving China spilled over to other markets, boosting sentiment for global trade."

Europe's major stock markets followed China's and all closed higher.

As for the U.S. stock market, premarket trading data indicated that the market would be having a good day, and it has not been wrong so far.

Currently (as of 18:37 UTC on July 6), the Dow Jones Industrial Average (DJIA), the S&P 500, and the Nasdaq are at 26196.15 (up 368.79 or 1.43%), 3172.03 (up 42.02 or 1.34%), and 10404.81 (up 197.18 or .93%) respectively. The leading sector was (as usual) technology, with Amazon and Netflix setting new all-time highs, helping the tech-heavy Nasdaq to power itself to a new all-time high.

This is what President Trump tweeted around 10 minutes after the U.S. stock market opened:

Today's stock market rally in the U.S. means that the S&P 500 and the Nasdaq are both on a five-day winning streak. 

So, what's fuelling investors' perhaps surprising amount of bullishness on stocks in the midst of the COVID-19 pandemic? This might be especially mystifying in the case of the U.S., where we are seeing around 50,000 new daily cases of COVID-19 (even though, thankfully, the number of death are going down).

It seems that investors and traders believe that:

  • As lockdown measures are eased, the outlook for businesses should keep improving.
  • There are encouraging signs from the pharmaceutical industry that we will soon have good therapeutics in the next few months and reliable vaccines by next year.
  • Governments around the world will continue to support the financial markets with monetary and fiscal stimulus.

Andrew Brenner of National Alliance told CNBC:

"I’m starting to believe the Covid case are an inverse indicator. The worse it gets, the more the market does better because it means more Fed and fiscal stimulus will come towards the markets."

The optimism that is fuelling the stock market rally appears to be also helping Bitcoin since today Bitcoin shake off the lethary of the long Independence Day weekend -- which saw Bitcoin dropping below $9,000 at 21:15 UTC on Sunday (July 5) and bounce back above $9,300 for the first time in 11 days:

2 Week BTC-USD chart on 6 July 2020.png

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