Tuesday, 7 December 2021

Exchange giant CME’s bitcoin futures get tepid take-up in debut

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NEW YORK/LONDON/SYDNEY: Bitcoin futures got a muted reception after their debut on CME Group late on Sunday, with volumes in the tens of millions of dollars in the first 12 hours of trading, as warnings about the risks of bitcoin sounded ever louder.

The launch of futures by the world’s biggest derivatives exchange operator, and by its rival Chicago-based exchange Cboe Global Markets a week earlier, had been hailed by many as the moment that bitcoin reached the investment mainstream.

That view has helped send bitcoin soaring even higher than before in recent weeks: it is on track for its best monthly performance in more than four years, having almost doubled in price since the start of December, when it was trading at less than $10,000.

But trading volumes in the CME and Cboe futures have so far been modest.

A total of 751 contracts – each of them for five bitcoins – had been traded on CME’s January futures contract as of 1417 GMT, at $18,970 per contract, just over 13 hours after their introduction, making a total notional value of around $70 million.

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On its contract’s debut on Dec. 10, the Cboe traded nearly 4,000 contracts – with a contract size of one bitcoin – during the full session. By the same time on Monday, 2,712 of Cboe’s January bitcoin future contracts had been traded, making a total of just over $50 million notionally.

That compares with notional daily trading volumes of up to $4 billion on BitMEX, a Hong-Kong-based trading platform specialising in bitcoin futures that offers investors up to 100 times leverage on their positions, and which has an initial margin requirement of just 1 percent.

The CME and Cboe futures’ requirements make them unattractive to many cryptocurrency traders. They can only be traded when the exchanges are open, they require initial margins of 35 to 45 percent, and deposits must be made in dollars rather than bitcoins.

“As a trader … the problem you have with these futures exchanges is there’s T+2 (settlement), weekends they are closed, bank holidays they’re closed,” said Alistair Milne, founder and manager of the Altana Digital Currency Fund.

“We’re all laughing at it because you have to send slow fiat to a futures exchange to post collateral on an asset that may move on a Sunday and margin-call you. It’s slightly ludicrous.”

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