CME, world's top derivatives bourse, to soon start bitcoin futures trade

Launch expected in last quarter of 2017; regulatory approval awaited

The market for bitcoin is set for a paradigm shift, with the world's largest derivatives exchange, CME, to soon begins futures trading in this popular crypto-currency.

"The launch of futures, is expected in Q4 (the last quarter) of 2017; we are still awaiting regulatory approval," said a spokesperson of the CME group to an e-mailed query.

The price of bitcoin has risen from $952 at the beginning of this year to $8,200, up 8.6 times. Bitcoin's market capitalisation is $136 billion, by one estimate, 56 per cent of the total crypto-currency m-cap.

CME is a regulated exchange and the approval by the US regulator, Commodity Futures Trading Commission, would give bitcoin greater credibility. Says a global blockchain and crypto-currency analyst, connected with a large exchange: "The success of bitcoin in futures might take time but this will change the crypto world. It will help bring confidence and a certain measure of safety."

Apart from enhanced credibility for bitcoin, the move would set a standard for other exchanges in launching similar products. Says Sandeep Goenka, co-founder of India's largest bitcoin exchange: "Trading of bitcoin on the largest exchange will give it a huge amount of credibility."

Bitcoin was widely traded on Chinese exchanges until a year ago. Then, that country's central bank asked all bitcoin exchanges to stop derivatives and margin trading.

However, regulatory approval need not necessarily come as easily as CME expects as bitcoin trade is considered a sensitive issue.

The CME spokesperson said, "The new contract will be a cash-settled index, with the underlying index (Bitcoin price) based on the CME CF Bitcoin Reference Rate, which serves as a once-a-day reference rate of the dollar price."

Bitcoin being a most volatile asset, CME said its margin methodology will be similar to other listed futures products and "margins for this product are expected to be higher than that of standard futures products. CME Globex risk controls will also be applied appropriately to the way bitcoin trades."

The spokesperson added: "CME has tailored market protection mechanisms that include circuit breakers in the futures market for up and down moves of seven per cent and 13 per cent, and a hard price limit of 20 per cent. If a 20 per cent price movement on either side is hit, Bitcoin futures cannot trade beyond the up/down limit." Trading is proposed to be 23 hours a day, Sunday morning to Friday.

The significance for bitcoin trading in India is described as high. Says Goenka, "Crypto-currencies have the potential to make India a global high in fintech. The user base has grown to almost 1.5 million in India and the industry is adding almost 200,000 users every month." The exchanges do keep issuing warnings that prices are volatile and investors should cosndier before investing. And, that India prices are at a premium to international ones, due to high demand.