The CME Group, the world’s largest derivatives exchange, has announced that it intends to launch bitcoin futures during the fourth quarter of 2017.
Chicago-based CME Group made the announcement on Tuesday, explaining that the futures will be cash-settled based on the CME CF Bitcoin Reference Rate, a bitcoin price index it launched last year in partnership with U.K. firm Crypto Facilities.
“Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract,” said Terry Duffy, CME Group chairman and chief executive officer. “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.”
The launch of bitcoin futures contracts is contingent on CME receiving regulatory approval for these products. Assuming regulators grant CME’s application, the exchange will become the second U.S. regulated exchange to offer bitcoin derivatives to institutional traders. Earlier this month, LedgerX quietly launched its institutional trading and options platform and experienced larger-than-expected volumes during its soft launch.
The absence of bitcoin derivatives has kept many Wall Street investors on the sidelines, citing concerns about low liquidity and lack of access to traditional trading products. The introduction of futures and options contracts is expected to introduce — in the words of BlockTower chief investment officer Ari Paul, a “wall of liquidity” to the crypto markets.
There's a wall of liquidity coming to crypto. Dark pools, growing OTC desks, liquidity aggregators, bitcoin futures and options.
— Ari Paul (@AriDavidPaul) August 13, 2017
In addition, the presence of bitcoin derivatives opens the door to the launch of the first exchange-traded fund (ETF) that tracks the price of bitcoin futures. Earlier this year, the Securities and Exchange Commission (SEC) stated that it could not review applications for these Bitcoin ETFs until derivatives were listed and traded on a regulated exchange.
“Once a derivative is launched, a bitcoin ETF will follow,” veteran trader Don Wilson told Bloomberg earlier this month. “That’s the common wisdom.”
The bitcoin price immediately surged following the announcement, reaching all-time highs above $6,400 on all major exchanges.