Will CME-Listed Bitcoin Futures Make Cryptocurrencies More Legitimate?

October 31, 2017 by Jon C. Ogg

Source: Thinkstock
If there is one thing that might further make bitcoin and cryptocurrencies more legitimate, having futures contracts is a start. That is exactly what the CME GroupĀ  plans to do. The futures exchange is planning, pending all relevant regulatory review periods, to launch bitcoin futures in the fourth quarter of 2017.

After, and if approvals are all granted, the new contract will be cash-settled and will be based on the CME CF Bitcoin Reference Rate (BRR). This serves as a reference rate of the U.S. dollar price of bitcoin once per day.

The notion of bitcoin-tracking is not exactly new. There are new cryptocurrencies that have taken a mee-too approach of sorts, and there is still a bitcoin ETF strategy that has been underway for some time. Also, the New York Stock Exchange announced some time ago that it was launching the NYSE Bitcoin Index (NYXBT) as the first exchange-calculated and disseminated Bitcoin index.

The big question is whether this makes bitcoin more legitimate with so many questions still being on the table. Warren Buffett, Jamie Dimon, and a whole host of other well known market wizards have panned bitcoin and cryptocurrencies. That being said, central bankers and monetary watch dogs have also more or less admitted that the cryptocurrency box has been opened and likely cannot be closed.

According to the most recent data, the world market value of cryptocurrency has grown to approximately $172 billion. Bitcoin is said to represent more than 54% of that total, giving it a market value of $94 billion (almost double from just in August). Also worth noting is that the bitcoin spot market is now said to have reached roughly $1.5 billion in notional value traded each day.

The CME Group said that it and Crypto Facilities Ltd. have calculated and published the BRR since November 2016. This aggregates the trade flow of major bitcoin spot exchanges during a calculation window into the U.S. Dollar price of one bitcoin as of 4:00 p.m. London time. CME Group and Crypto Facilities Ltd. also publish the CME CF Bitcoin Real Time Index (BRTI) to provide price transparency to the spot bitcoin market.

Terry Duffy, CME Group Chairman and CEO, said of this launch:

Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract. As the world’s largest regulated FX marketplace, CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities.

If you wish to know how complicated regulation and understanding bitcoin has been, the SEC page for bitcoin shows many delays and even fraud and crime all around the effort.