“Based on increasing client demand and robust growth in our Bitcoin futures markets, we believe the launch of options will provide our clients with additional flexibility to trade and hedge their bitcoin price risk,” said Tim McCourt, CME Group Global Head of Equity Index and Alternative Investment Products.
“These new products are designed to help institutions and professional traders to manage spot market bitcoin exposure, as well as hedge Bitcoin futures positions in a regulated exchange environment.”
Since their launch in December 2017, market users have rapidly adopted CME Bitcoin futures for their hedging and trading needs.
There have been 20 successful futures expiration settlements and more than 3,300 individual accounts have traded the product since inception.
Year to date, nearly 7,000 CME Bitcoin futures contracts (equivalent to about 35,000 bitcoin) have traded on average each day.
At the same time, institutional interest continues to build with the number of large open interest holders reaching a record 56 in July.
CME Group is the only derivatives marketplace where customers can hedge or trade benchmark options on futures across every investable asset class, with average daily volume of 4.3 million in 2019 to date.
By launching Bitcoin options, the company is providing clients with additional tools for precision hedging and trading.
As the world’s leading and most diverse derivatives marketplace, CME Group enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data – empowering market participants worldwide to efficiently manage risk and capture opportunities.
CME Group exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals.
The company offers futures and options on futures trading through the CME Globex® platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform.
In addition, it operates one of the world’s leading central counterparty clearing providers, CME Clearing.
With a range of pre- and post-trade products and services underpinning the entire lifecycle of a trade, CME Group also offers optimization and reconciliation services through TriOptima, and trade processing services through Traiana.
“One year ago, we announced our ambitious vision to bring institutional infrastructure to digital assets with an end-to-end regulated marketplace,” said Bakkt CEO Kelly Loeffler.
“That vision will be realized on September 23 when Bakkt launches custody and physically-delivered daily and monthly bitcoin futures contracts in partnership with ICE Futures U.S. and ICE Clear US.”
The contracts have already received the green light from the Commodity Futures Trading Commission (CFTC) through the self-certification process and user acceptance testing has begun.
With approval by the New York State Department of Financial Services (NYDFS) to create Bakkt Trust Company, a qualified custodian, the Bakkt Warehouse will custody bitcoin for physically delivered futures.
This offers customers unprecedented regulatory clarity and security alongside a regulated, globally accessible exchange in a market underserved by institutional-grade infrastructure.
In recent weeks, Bakkt hosted events in New York and Chicago where they gathered roughly 150 customers, regulators, and market participants to advance the dialogue in the industry, including a fireside chat with CFTC Commissioner Dawn Stump.
While much has been said about deficiencies in cryptocurrency markets, the advances being made in the digital asset ecosystem are significant in terms of participants, platforms and applications — not to mention the rapid pace of development that continues through bear and bull markets.
Digital asset markets are global and well-developed, but they have largely been designed to serve retail customers rather than institutional participants.
“Whether concerns relate to a lack of liquidity, market quality and regulation, or issues with reliability, fees, and operational risks, we are addressing these challenges with a transparent offering,” said Loeffler.
The Bakkt Warehouse, which is part of Bakkt Trust Company, is built using the cyber and physical security protections that support the world’s most actively traded markets, including the NYSE.
In addition, the independent governance and compliance requirements of a qualified custodian mean that the Bakkt Warehouse is designed to meet the highest standards of oversight.
Uniquely, Bakkt bitcoin futures contracts will not rely upon unregulated spot markets for settlement prices, thus serving as a transparent price discovery mechanism for the benchmark price for bitcoin.
The importance of this differentiator is only amplified by reports of significant manipulative spot market activity, and other concerns such as inconsistent anti-money-laundering policies and weak compliance controls.
Bakkt’s bitcoin futures will be exchange-traded on ICE Futures U.S. and cleared on ICE Clear US, which are federally regulated by the CFTC.
Regulated exchanges differ from trading platforms, such as crypto spot markets in many respects, including risk management, compliance and market surveillance.
The Bakkt futures contracts will also be covered by the existing guaranty fund at ICE Clear US, which has an established risk waterfall across multiple commodities markets.
An incremental $35 million is being contributed to the existing guaranty fund with the addition of these new futures contracts.
“We’ve designed the Bakkt Warehouse to provide regulated, secure custody of bitcoin that is protected by $125 million in insurance,” stated Loeffler.
“Providing a trusted ecosystem is our first objective. To do that we are setting a higher standard, including an institutional compliance and anti-money laundering program, settlement prices that are distinct from unregulated spot prices, comprehensive market oversight, a guaranty fund contribution and insurance.”
Looking back to Milton Friedman’s prescient remarks in 1999, just as the internet was taking hold, his clarity about the future of an internet-connected economy was striking:
“The one thing that’s missing, but that will soon be developed, is a reliable e-cash. A method where buying on the Internet you can transfer funds from A to B, without A knowing B or B knowing A.”
It was a provocative, perhaps largely unnoticed remark at the time, but was followed a decade later by the watershed Bitcoin white paper and blockchain.
“Today, we’re helping institutions, consumers, policy makers and regulators engage in this emerging market through a trusted, secure and compliant platform,” said Loeffler.
“We are excited about supporting the future of digital assets at Bakkt. Until our launch on September 23, we’ll continue onboarding and testing with market participants. If you’re interested in trading the Bakkt Bitcoin Daily or Monthly Futures contracts, contact us at firstname.lastname@example.org. We look forward to continuing our work with market participants to bring more trust, access, opportunity and utility to digital assets.”