Investors lukewarm to CME's bitcoin futures

NEW YORK • Bitcoin futures received a lukewarm reception at its launch on the CME Group on Sunday, although market experts believe a recent rally in the cryptocurrency has further to go.

The CME bitcoin front-month futures contract did open higher at US$20,650, but dropped 6 per cent within the first half hour. It was last at US$18,805, below the US$19,500 reference price set by the exchange for the January contract.

The reference price, from which price limits are set, is US$19,600 for the February contract, US$19,700 for March and US$19,900 for June, according to CME.

On Dec 10, Chicago-based derivatives exchange Cboe Global Markets launched bitcoin futures, which saw the price surge nearly 20 per cent in its debut.

The week-old bitcoin futures contract at the Cboe was last trading at US$18,890, up 4.3 per cent.

Spot bitcoin eased 1.9 per cent on the Bitstamp exchange to US$18,650, after surging to a record high of US$19,666 on Sunday.

The launch of bitcoin futures is viewed as a major step in the digital currency's path towards legitimacy, which should encourage the entry of big institutional investors. "We saw a nice open on light volume, but pretty uneventful so far," Mr Spen-cer Bogart, a partner at Blockchain Capital, said after trading began on Sunday. "This is a brand-new asset class and... perhaps a lot of investors want to sit back and see how this plays out before dipping their toes in this market."

Volume on CME was recently at 590 contracts. On its debut on Dec 10, the Cboe traded nearly 4,000 contracts during the full session.

Bitcoin was set up in 2008, and was the first digital currency to successfully use cryptography to keep transactions secure and hidden, making traditional financial regulation difficult, if not impossible.

Some investors believe the CME bitcoin futures could attract more institutional demand because the final settlement price is culled from multiple exchanges.

"The launch should increase buy-side pressure and potentially be the catalyst that pushes bitcoin above US$20,000,"said fund manager Shane Chanel of ASR Wealth Advisers in Melbourne.

"The introduction by CME and Cboe has added validity acknowledging bitcoin as a legitimate asset."

The Cboe futures contract is based on a closing auction price of bitcoin from the Gemini exchange.

The general sentiment in the market remains one of caution, which is reflected in margin requirements for the contracts. Margin refers to the initial deposit made into an account in order to enter into a contract. The margin requirement is 35 per cent at CME and 40 per cent at Cboe, reflecting bitcoin's volatility. The margin for an S&P 500 futures contract, by contrast, is 5 per cent, analysts said.


A version of this article appeared in the print edition of The Straits Times on December 19, 2017, with the headline 'Investors lukewarm to CME's bitcoin futures'. Print Edition | Subscribe