Bitcoin Surges To New Record High As CME Launches Bitcoin Futures In Q4

Tyler Durden's picture

As the mainstream continues to embrace cryptocurrencies - much to the chagrin of Jamie Dimon et al. in the establishment - CME Group is "responding to client interest" and launching a Bitcoin Futures contract in Q4.

CME Group says new contract will be cash-settled, based on the CME CF Bitcoin Reference Rate (BRR) which serves as a once-a-day reference rate of the U.S. dollar price of bitcoin.

This news has sent Bitcoin back up to record highs...

Full CME Statement:

CME Group, the world's leading and most diverse derivatives marketplace, today announced it intends to launch bitcoin futures in the fourth quarter of 2017, pending all relevant regulatory review periods.

The new contract will be cash-settled, based on the CME CF Bitcoin Reference Rate (BRR) which serves as a once-a-day reference rate of the U.S. dollar price of bitcoin.  Bitcoin futures will be listed on and subject to the rules of CME.

"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."

Since November 2016, CME Group and Crypto Facilities Ltd. have calculated and published the BRR, which 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. The BRR is designed around the IOSCO Principles for Financial Benchmarks. Bitstamp, GDAX, itBit and Kraken are the constituent exchanges that currently contribute the pricing data for calculating the BRR.

"We are excited to work with CME Group on this product and see the BRR used as the settlement mechanism of this important product," said Dr.Timo Schlaefer, CEO of Crypto Facilities.

 

"The BRR has proven to reliably and transparently reflect global bitcoin-dollar trading and has become the price reference of choice for financial institutions, trading firms and data providers worldwide."

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.  The BRTI combines global demand to buy and sell bitcoin into a consolidated order book and reflects the fair, instantaneous U.S. dollar price of bitcoin in a spot price. The BRTI is published in real time and is suitable for marking portfolios, executing intra-day bitcoin transactions and risk management.

Cryptocurrency market capitalization has grown in recent years to $172 billion, with bitcoin representing more than 54 percent of that total, or $94 billion.  The bitcoin spot market has also grown to trade roughly $1.5 billion in notional value each day.

*  *  *
As CoinTelegraph noted previously, mainstream exchange embrace of Bitcoin could lead to less volatility and further acceptance and new opportunities.

In what can be seen as a mainstream financial world’s embrace of Bitcoin, the Chicago Mercantile Exchange (CME Group) and Intercontinental Exchange Inc. (ICE) are all set to publish data on prices of Bitcoin. CME Group is likely to start publishing this data in the fourth quarter of 2016 while ICE, the owner of the New York Stock Exchange (NYSE) is considering if it should include data from various exchanges for a daily settlement price which it has been publishing since May of 2015.

Recently Dwijen Gandhi of ICE told Reuters that NYSE will soon launch a real-time pricing index which he said would provide additional transparency and insight into the Bitcoin price.

CME Group plans two new Bitcoin products

CME Group and ICE taking the Bitcoin dive is good news for the newly established ‘Digital Asset Class’. The participation of exchanges would allow investors and traders alike to easily acquire the information that they need to trade Bitcoin with more confidence.

According to a press release dated May 2, 2016, the CME group has said that they will collaborate with Crypto Facilities Ltd, a digital assets trading platform, and that they will be developing two new products which they plan to launch by Q4, 2016.

CME CF Bitcoin Reference Rate (BRR), which will provide a final settlement price in US dollars at 4 PM London Time on each trading day and the CME Bitcoin Real Time Index (RTI), which allows for real time access to Bitcoin prices.

Cointelegraph talked with Sandra Ro, Executive Director at CME Group about how these developments would affect Bitcoin prices and she says:

“There is no current bitcoin reference rate which is considered “standard” market convention. There are many real time indices but we believe our methodology, inclusion of only the most serious bitcoin exchange data, and focus on developing digital assets will add significant credibility to the nascent digital asset market.”

It is notable that RTI will be calculated by Crypto Facilities and will be calculated  based on global demand to buy and sell Bitcoin aggregated into a consolidated order book.

The Price of Bitcoin will be in US dollar terms and will be published once every second according to data made available by CME on the website.

NYSE Bitcoin index NYXBT

On the other hand, the New York Stock Exchange has already wet its feet in the Bitcoin pool by launching the NYSE Bitcoin Index (NYXBT). NYXBT is the first ever exchange-calculated and disseminated Bitcoin index according to ICE.

NYXBT uses a ‘unique methodology’ according to the ICE press release which relies on “rules-based logic to analyse a dataset of matched transactions and verify the integrity of the data to ultimately produce an objective and fair value for one Bitcoin in US Dollars at 4 pm London Time.”

NYXBT will at first take data from transactions from the Coinbase exchange. It is pertinent to mention here that NYSE had made a minority investment in Coinbase in 2015.

Thomas Farley, NYSE Group President, says:

“As a global index leader and administrator of ICE LIBOR, ICE Futures U.S. Dollar Index and many other notable benchmarks, we are pleased to bring transparency to this market. By combining our technology infrastructure with our expertise in index calculation and data management, we will continue to launch complementary products based on our rigorous standards and proprietary index methodology.”

Expect more mainstream participation and new products

It seems that the mainstream financial world is finally ready for Bitcoin. This could mean a new era in which Bitcoin could actually become THE digital asset class and could also lead to further delivery of new financial products for traders and investors.

Cointelegraph talked with Fran Strajnar, Founder and chief executive officer of BraveNewCoin (BNC), an institutional Digital Asset Data provider. Strajnar is excited about these new developments.

Strajnar says to CoinTelegraph:

“What Bitcoin and the entire Digital Asset Class needs to hit mainstream is not just consumer and application adoption but financial infrastructure and the adoption of quality market data services, by well established trading platforms.”

He added that BNC itself provides market data and indexing solutions.

As for opportunities for traders in the form of new products, he thinks that because Bitcoin is global, functions like nothing else and requires a global spot price.

Strajnar expects to see two things evolve from CME’s Bitcoin reference rollout in Q4:

  1. Creation of various Derivative products & further ETF potential, which will help with reducing volatility.
  2. A disparity between US Dollar denominated Bitcoin trading activity and other BTC trading pairs, seeing as the CME index only includes BTC/USD trading. A good arbitrage opportunity will come out of this.

 

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spastic_colon's picture

absolutely no dimon chagrin..........he is probably one of the largest investors

BaBaBouy's picture

Lol ... Mainstream Bitcoinz Shorting Has Arrived ... Still Bullish ???

tmosley's picture

Of course. Naked shorting can't happen on the blockchain, and exchanges that allow it, if they ever do, will be blacklisted and their price data won't be incorporated into the price.

BaBaBouy's picture

"CME Group says new contract will be cash-settled"

You know what this means, they can Print as many as they want, pump them out in Paper Futures...

Gee, I Wonder Whats holding GOLD Down ~ ?

tmosley's picture

The fact that kitco takes their price data from that shitty, corrupt exchange.

Until that changes, gold and silver are going no-where.

Manthong's picture

 

..and so it begins…

Now they can short it…

It’s all about “the fix”

Just like gold and silver……..

But………………………………..

.. you can’t bury Bitcoins in a sealed PVC tube in the woods.

 

“I lost my Bitcoins in a boating accident”

 

Keep in mind that BTC is related to and converted to fiat....

they can create all the fiat they want

until fiat crashes to zero....

 

Then you might have something there.

..and until then "the fix is in"


 

 

nope-1004's picture

Exactly.  Futures are a proxy price mechanism that isn't accurately set by underlying fundamentals.

This just gives the manipulators breathing room to kill it.  And in todays computer driven electronic world, it's as easy as keyboard entries.

 

Manthong's picture

 

In a perfect world…

Without the criminal rentiers….

The whole crypto / blockchain / transaction is the settlement…

..is a glorious structure.

Unfortunately, until hundreds of guillotines are rolled out and overworked in the major financial centers

They ain’t gonna let it happen.

Justin Case's picture

According to the CME the average daily volume of Silver futures and options in the month of May was 117,196 contracts and 13,786 contracts respectively or 655M ounces of paper silver traded per day. There were 22 trading days in the month which puts the total amount of paper silver traded on the COMEX in May at 14.4 BILLION ounces (14,408,020,000 to be exact).
That is a ratio of 160-1 paper vs physical ounces of silver trading!
All of these paper derivatives should be measured against the monthly physical supply for silver of 83M oz/mo. Given all these other forms of paper silver derivatives I would estimate that the COMEX only represents one third of the total paper silver transactions.

That is a ratio of 500-1 paper vs physical ounces of silver trading!

No wonder the price of silver fell so dramatically! The PRICE of silver has absolutely NOTHING to do with the underlying physical silver market. The price of silver is massively distorted by computer trading programs trading millions of ounces of paper silver back and forth to each other to STEER the price not discover the price. There is no "free market" for silver anymore.

THE PHYSICAL SILVER MARKET HAS BEEN 100% DESTROYED BY SILVER DERIVATIVES! Will it be different with BTC? That  you can decide.

tmosley's picture

>Will it be different with BTC?

Of course, because the bitcoin price isn't set in any derivatives market, where the price of silver is set explicitly by the derivatives market (and the London price fixers whose literal job is to fix the price).

Got The Wrong No's picture

The price of PM was not priced that way until it was. 

SoilMyselfRotten's picture

Although i agree that they will inevitably uses shorts for their personal profit, it doesn't mean they won't first use the futures to send it to the stratosphere. Hang on cuz could be one wicked ride.

Kafir Goyim's picture

Had to give you a down arrow.  You're right that they claim this secondary market will be the tail, and the exchanges will be the dog.  However, as this market gets large enough, I think the tail will wag the dog and effect/control the price on the exchanges.

Every penny spent by long btc investors in this secondary market is a penny not spent buying actual bitcoin.  This is bad enough.  But couple that with the fact that because this is a cash settled contract, they can print fiat and sell contracts all day long, and just settle those contracts with printed fiat, suppressing the price.

fattail's picture

It's also cash settled, and the cash prices are set by outside markets. The comex runs the PM derivatives market, acts as a reference rate and pretty much sets the PM price.  That concentration makes it easy to suppress prices.  

They can't control the BTC exchanges and the flow of money into those and what price they pay.  Too many exchanges, too many countries, too many desperate Asians, billionaires and criminals need to use BTC to move money around.

The shorts can make money shorting the futures when the flood of money into the futures contango gets the futures ahead of the BTC cash market.  Cash index just means the settlement will be at the cash price  in dollars on the expiration day.  A whole lot of people will want exposure to this.  Expect this to be huge.

This the best news I have heard all day.

toknormal's picture

While that's true to some limited extent, the fact that the underlying asset (bitcoin) is electronically liquid makes the fundamental difference with precious metals markets. You can't take delivery of a gold bar or coin over a wire and that's what lead to their obsolecence as bearer instruments.

Manthong's picture

 

The dirty little secret of the CB’s is that gold is the underlying asset that they hypothecate and is the key to the bond market…

Don’t take my word for that…

Read up on Larry Summers and Alan Greenspan (the filthy criminals).

Consuelo's picture

 

 

"...gold and silver are going nowhere."

 

Precisely Tmos.   And just as they should.   They're not supposed to go anywhere.

They're supposed to protect you in times of fear and uncertainty - or worse.   Which, is just what they'll do again, as they have for - well, you know.    You are correct however in the logic that PM's aren't going anywhere on the paper gambling markets, yes.   Fear - honest to goodness real market/economic/societal/geopolitical Fear, is now the only factor which matters in anything precious metals related.   Since 2011 in fact, when those in control of the levers had a choice - put it down now, or collapse in a currency crisis.   And they succeeded to pull it off, at least for now.

tmosley's picture

>They're not supposed to go anywhere

What a stupid thing to say.

You are losing all your purchasing power to inflation.

Blue Dog's picture

No, I'm not. The dollar is dying. Price suppression won't last forever. The time will come when we have $600 silver and $10,000 gold. I'll be a millionaire then. What about you?

marysimmons's picture

BTC, and other decentralized digital currencies, are such an existential threat to the current fianancial status quo, that they are pulling out all the stops - attempts at inserting themselves as middlemen with the Sewit2X fork, BTC futures markets, ongoing slamming of decentralized currencies by their puppets in the media and government.  

How can they "print as many as they want"?  Decentralized digital currencies. like BTC, are fundamentally different - they are code that exist on a blockchain - they cannot be naked shorted into the ground like silver.  

There is an epic battle going on now bewteen fundamental financial freedom and the endemically corrupt financial system we now have. Personally, I think decentralization will ultimately win out

DisorderlyConduct's picture

Here come allocated and unallocated bitcoin pool accounts...

I wonder how big the first slam will be and how much freshly-printed US funbux it will take? It's only a matter of time. Sowing FUD into bitcoin just like they did gold and silver...

dark fiber's picture

Yeah the same way naked shorting of gold is not allowed right?  LOL

tmosley's picture

The opposite of that sentiment, idiot.

There are a thousand bitcoin exchanges. You can run one off a thumbdrive. The pricing mechanism used by coinmarketcap is public. They don't take volume data from exchanges that allow no-fee transactions, nor do they take price data from exchanges that allow naked shorting.

dark fiber's picture

The moment an asset becomes financialized, its market becomes regulated because "transparency" and other assorted nonsense.  Kiss your thumbdrive exchanges goodbye right now you and the rest of the morons who take you seriously.  You will not be able to run your own exchange anymore than you can run your own COMEX or start your own bank.  BTW no exchange can stop a bank from writing $100B worth of bitcoins, dumping them in the market, and then if things go wrong force cash settlement on you.  Sound familiar?

tmosley's picture

You sound like a beaten woman.

Fizzy Head's picture

"BTW no exchange can stop 'the federal reserve' from 'exchanging conjured fiat for' $100B worth of bitcoins, dumping them in the market,"

 

FIFY : )

marysimmons's picture

How can they write "$100B worth of bitcoins"??  On a piece of paper?  On a computer screen?  BTC exists on a blockchain.  If its not the exactly correct code on the exactly correct blockchain, then it isn't BTC.  Sure, "they" can create a secondary or tertiary market and call it "BTC futures", or whatever, and move those prices around anywhere they want, but it will be meaningless to the real BTC market. 

Thought Processor's picture

 

 

Anyone know the easiest way to co-opt and take over a financial entity?  Simple- just create a derivitive based 'futures' market where you can control the future pricing of contracts.  And done.

 

This is how all the priciing for any major commodity you can think of is effectively managed or controlled.  Far more derivitive based 'volume' can be created than actual real volume in existence.  Once a certain threshold is reached you effectively have control.  Same with the FX markets where NY and London dominate.

 

This is an old game.  The tactics were long ago refined and mastered.

tmosley's picture

>Simple- just create a derivitive based 'futures' market where you can control the future pricing of contracts

That only works when you are the only game on the planet. This is not the case with bitcoin.

Pay attention. This is important.

Thought Processor's picture

 

 

Perhaps.  This is all an experiment in progress but if this is going where I think it's going then the U.S. Gov (and others) will simply approve only certain exchanges for crypto currencies.  Then they hold power via regulation of the approved exchanges.  This plus the derivitive market, which will also be approved and regulated, will effectively box in the pricing and transparency of transactions (so gov can track them) creating a monopoly of sorts (like rockefellers did with oil, they effectively monopolized the middle and gained control over refining, distribution, and pricing).  The Governments (or central banks) effectively become the middleman by edict.  They can then dominate with manipulation of sheer volume, if they want.  

The crypto markets are tiny in comparison to the current FX market sizes.  State players could easily dominate if they so desired.  The above is one way.

 

Also remember that the real dream of the central banks owners would be to create a 'stateless' currency (a micro SDR of sorts).  This vehicle would be important, even critical, to have in place before the Sovereign currencies implode.  Need to have another trading vehicle / lifeboat out there when all others are floundering.  

 

Think like a pirate, one who plans 25 years in advance.

Buckaroo Banzai's picture

Gold and silver are very difficult to actually physically trade. You have to store and move valuable physical materials around the globe in order to settle the trades. This is difficult, costly, and risky. Futures, on the other hand, can be bought and sold electronically at the touch of a button. And while futures contracts can theoretically be settled with physical metals, the exchange reserves the right to settle in cash which makes physical settlement a moot option. This is how the fiat markets control the pricing of the metals markets.

BitCoin, on the other hand, is different than a physical commodity. BitCoin trades can be settled electronically, and virtually instantaneously, across the entire globe. So the futures market for BitCoin will not be able to manipulate the price of the underlying asset in the same way that the futures markets do for gold or silver.

My first impression is, a BitCoin futures market would be more analogous to the currency futures market than the physical commodities futures market, as both currency trades and currency futures trades can be settled electronically and instantaneously.

 

Thought Processor's picture

 

 

Putting it in the CME means they are catagorizing it as a commodity like asset, not really a 'currency'.  

 

Any CME level traders on here, who can speak to the implications of this?

Buckaroo Banzai's picture

The CME trades currency futures, it isn't just for commodities

http://www.cmegroup.com/trading/fx/

terryfuckwit's picture

yours is best comment thus far. No one has a monopoly on the truth. I bought bitcoin at a fiver each and it has been very good too me although i never bought enough ha ha.

I have great belief in the potential of the blockchain in decentralization of power.

The fed will have to do a plunge un protection scheme on it..ie they will need to bring it up to bring it down. 

yes it will be more like currency manipulation but they were quite good at that too.

Buckaroo Banzai's picture

My impression is, it's difficult to manipulate currency prices because it is such a gigantic, liquid, and decentralized marketplace.

It's worth pointing out that spot Forex transactions actually take two days to settle--pre-blockchain, this is as close to "instantaneous settlement" as the world could get. BitCoin transactions are settled within minutes, maybe a few hours at the absolute most, depending on network transaction volume.

Sooner or later, spot trading for everything is going to move to the blockchain because of this fact.

Thought Processor's picture

 

 

Ageed.  Though prices can be manipulated with 'flow.'  Supply vs. demand.  He who controls the flow controls the game.  Whether Decentralized or not does not matter.  

 

Imagine you have 1 trillion in liquid sovereign currencies which can then be exchanged in a managed fashion into crypto currencies.  Can you then influence the price of such entities, given both the purchasing and selling power you have?  Imagine also you have set up a derivitive Futures arena where you can set contract pricing for large quantities of said instrament.  Does that not make pricing power easier?  These are age old questions.  They speak to the very fundamental nature of the weaknesses or flaws in free market economics if and when one player or one group attains a disproportional amount of reserves or has influence over the flow of transactions (ie. regulation).  

 

Free Market Capitalism actually favors the victor.  This when compounded over time creates or has the potential to create an inevitible imbalance.  Governments are perhaps supposed to regulate, monitor, and police these 'markets' though once the victors compromise the Governments then the game is essentially over.  It's rigged.  Simple as that.

 

Which leads us perhaps to where we are now.  Will the 'balance' swing back?  Eventually, we hope, moslty because life out of balance ultimately destroys itself.  

 

 

Dirty Bumn's picture

I'm looking forward to speculating on Bitcoin Futures, without having to actually buy Bitcoins. Maybe someday Bitcoin and Distributed Ledger Technology will change my life in a positive way, after eight years it has yet to do so.

tmosley's picture

>after eight years it has yet to do so

WAAAA, I DIDN'T GET RICH OFF SOMETHING I DIDN'T INVEST IN!!

WAAAAAAAAAHHHHHHHH!!!

11b40's picture

It would have if you had bought a pocketful 8 years ago.

quadraspleen's picture

I only bought a few in 2015 and I'm already laughing

LostAtSea's picture

"Naked shorting can't happen on the blockchain, and exchanges that allow it, if they ever do, will be blacklisted and their price data won't be incorporated into the price. "

 

Kraken already allows BTC naked short positions, and they *are* part of the CME pricing.

tmosley's picture

>Kraken already allows BTC naked short positions

Gonna need a source on that. DDG doesn't confirm.

LostAtSea's picture

I traded a short BTC position last week on Kraken. 

tmosley's picture

A short position is very different from a NAKED short position.

LostAtSea's picture

I see your point. I don't know what Kraken does behind the scenes on a short trade. Hopefully they are not doing short nakeds. I normally think of naked shorts in relation to selling options. 

tmosley's picture

Most exchanges allow you to lend your coins for a variable fee.

LostAtSea's picture

See the Kraken home-page..scroll down to where it says "Leveraged margin trading ...shorting allowed".  https://www.kraken.com

Word of Warning to anyone thinking of jumping over to Kraen through:  The reason I shorted BTC is because I saw a H&S Top forming at around $6000.  When BTC didn't follow through to the downside as expected, I tried to get out.  Took near 8 days to get out of my position.  Tech Support told me they are having scalability issues and to be patient and keep trying. It's crazy that they are allowing leveraged trading when traders cannot get out of positonis.  I reluctantly moved funds back to coinbase / GDAX.  

 

 

Buckaroo Banzai's picture

My impression of Kraken is, it is a cock-blowing clusterfuck.

And Coinbase maintains a transaction blacklist for customers who engage in Wrongthink. So, Fuck Them.

This is why I prefer Gemini

LostAtSea's picture

so, what gets you blacklisted on Coinbase? Is Gemini open to US customers?