CME Group’s head of alternative investments is batting away gloomy predictions for the crypto industry, saying he expects demand from Asian investors to peak head of the upcoming launch of options on bitcoin futures contracts.
Tim McCourt, who also heads CME’s equity products, added that investors, from trading firms to hedge funds, have increasingly turned to exchanges regulated in traditional financial centers. He added that based on increasing client demand and robust growth in their Bitcoin futures markets, he believes the launch of options will provide their clients with additional flexibility to trade and hedge their bitcoin price risk.
The forecast, against a backdrop of recent record volumes for BTC futures, predicts that Asian and European participants will also step in to buy the new derivatives to gain exposure to the asset while avoiding the hacks and heists that plague the underlying venues.
Most recently, CME posted record numbers in August for its bitcoin futures trading, with YTD volumes averaging 7,237 contracts or $370 million per day, which is a 132% increase from the same period last year. On May 13, the product hit a record 34,000 futures contracts, worth $1.3 billion, and equivalent to 170,000 bitcoin.
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Both futures and options are a way for investors to bet on the trends of bitcoin price without having to actually hold the digital currency, which skirts regulatory and custodian issues. However, futures are in general riskier than options as the only financial liability for the latter is the premium paid at the purchase time. Futures contracts, on the other hand, involve maximum liability.
Bitcoin options coming to the US
“While futures give you a one-for-one exposure, whereby the movement of the underlying bitcoin translates directly to a specific dollar value per contract, an option gives you varying strike-price levels and can give you either downside protection, or upside exposure at a fraction of the underlying [assets’] price,” said McCourt.
CME Group expects to launch options on its Bitcoin futures contracts within the first months of 2020
With extra regulatory safeguards, CME Group introduced Bitcoin futures in December 2017, marking a major step in the path to legitimate the cryptocurrency.
The Chicago-based venue was not the only exchange to try to capitalize on the crypto frenzy as Cboe pioneered with its own cash-settled bitcoin contracts. However, Cboe decided earlier this year to discontinue its bitcoin futures trading activities. CME, on the other hand, pressed onward with new crypto products.