Will CME Group’s Launch of Options on Bitcoin Futures Boost the BTC Price?

Siamak Masnavi

As the Bitcoin price hovers around $8,100, having gone up over 12% in the year-to-date period, there is one question on the minds of many investors/traders: will today's launch by the CME Group of options on Bitcoin futures help the BTC price climb even higher?

According to data from CryptoCompare, Bitcoin is currently trading around $8,100, most unchanged over the weekend, but up 12.62% in the year-to-date (YTD) period:

BTC-USD Two Week Chart on 13 Jan 2020.png

On 12 November 2019, CME Group ("CME"), which owns "large derivatives, options and futures exchanges in Chicago and New York City using its CME Globex trading platforms", announced options on its Bitcoin futures contracts would be launching ("pending regulatory review") on 13 January 2020.

Tim McCourt, CME Group's Global Head of Equity Index and Alternative Investment Products, had this to say back in November 2019:

"Since the launch of our Bitcoin futures nearly two years ago, clients have expressed a growing interest in options as another way to hedge and trade in these markets. We have worked closely with clients and the industry to establish a robust and increasingly liquid underlying futures market here at CME Group, and we believe Bitcoin options will now offer our customers greater precision and flexibility to manage their risk."

Here are some details about this new product:

  • Each options contract settles into one Bitcoin futures contract (representing five BTC).
  • CME Bitcoin futures are based on the CME CF Bitcoin Reference Rate (BRR), a Bitcoin pricing product launched in 2016 that is "a daily reference rate of the U.S. dollar price of one bitcoin as of 4 p.m. Greenwich Mean Time."
  • Each day, the BRR aggregates the trade flow of major bitcoin spot exchanges during a specific one-hour calculation window. This one-hour window is then partitioned into 12, five-minute intervals, where the BRR is calculated as the equally-weighted average of the volume-weighted medians of all 12 partitions.
  • These options are available for trading on CME Globex and CME Clearport. (Trading Hours: 5:00 p.m. – 4:00 p.m. Chicago/Central Time, Sunday to Friday)
  • Prices are quoted in USD per one BTC.
  • The minimum block size is 5 contracts.

CME says that this new product helps Bitcoin traders "to save on margins, through margin offsets" and reduces "risk of counterparty default through central clearing."

The following is CME's current set of Bitcoin futures contracts:

CME Bitcoin Futures - Jan 2020.png

Although there is debate in the crypto community around how Bitcoin futures products affect the spot price of Bitcoin, as McCourt points out, "clients have expressed a growing interest in options as another way to hedge and trade in these markets."

Although we cannot be sure how the launch of options on Bitcoin futures will affect the price of Bitcoin, the launch of this product certainly signals the growing maturity of Bitcoin as an asset class.

A report by Bloomberg on Saturday (January 11) said that according to a research note by JPMorgan Chase on Friday (January 10), there is "high anticipation" for the launch of the CME Group's new product:

There has been a step increase in the activity of the underlying CME futures contract... This unusually strong activity over the past few days likely reflects the high anticipation among market participants of the option contract.

And one day earlier (i.e. January 10), Thomas Lee, Co-Founder, Managing Partner, and the Head of Research at independent research boutique Fundstrat Global Advisors, tweeted about a report he had published on January 9 about the outlook for crypto in 2020.

According to this report, there are three positive convergences/catalysts for Bitcoin in 2020:

  • Bitcoin halving/halvening (which is expected to take place around 12 May 2020).
  • Geopolitical tensions in the Middle East.
  • 2020 U.S. Presidential Election

Lee says that the bottom line is that "financial markets tend to discount 1-3 months, and maybe 6 months (max)" and therefore the "highest probability is halvening not priced in." 

 

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