Everyone in crypto is excited about the launch of Bitcoin futures on the CME (Chicago Mercantile Exchange). The CME is one of the largest futures exchanges in the world. A few notes on this as I am reading a lot of nonsense out there:
- Overall this has to be seen as bullish for Bitcoin and establishes the asset on the “institutional” playing field.
- Bitcoin futures are CASH SETTLED which means when the contract expires you are charged or credited in USD the difference between the futures price and Bitcoin spot price. If you’re futures contract is $7000 USD and Bitcoin spot is $6000 USD you will lose $1000 USD from your account.
- Cash settlement means the futures volume doesn’t necessarily translate into actual Bitcoin volume. That being said I’d wager that Bitcoin volumes would move higher as traders arbitrage the futures versus actual Bitcoin.
- Yes, some people will hedge with actual Bitcoin but settlement is still a major issue for institutions and will prevent them from trading actual Bitcoin. Essentially Hedge Funds and Banks can’t yet handle the storage and delivery of Bitcoin. (see here) Plus Bitcoin itself hasn’t been explicitly approved by the SEC or other regulatory bodies.
- LedgerX already launched Bitcoin options which many will use in conjunction with Bitcoin Futures. You can buy or sell the options and use the future as a hedge if you’d like to trade the “volatility” of Bitcoin. You can also express a directional Bitcoin price view using Bitcoin futures and then hedge with options.
- I find it somewhat ridiculous that this is a grand conspiracy by the banks to take down bitcoin. CME is a for profit exchange and Bitcoin is an asset with rapidly growing demand.