CME Unveils Bitcoin Futures Circuit Breakers

Tyler Durden's picture

Having taken a gamble on bitcoin futures, which are set to begin trading by the end of the year, the CME is now seeking to avoid the consequences of what has emerged as both the cryptocurrency's best and worst selling point: its unprecedented volatility. To do that, the Chicago-based exchange will do what it does to virtually every other asset class traded under its roof, and impose limits on how much prices of bitcoin futures can fluctuate within a day.

While the CME already uses daily vol limits on most other markets, including crude, gold and market futures, to temporarily halt trading when price swings get out of control, the CME has never before dealt with something like bitcoin, which in addition to being the world's best performing asset classes in recent years, is also its most volatile. And, as the WSJ adds, it is also unclear how much impact CME’s limits will have on bitcoin, since its futures market has yet to emerge and most trading in the digital currency is on exchanges outside of CME’s control.

In any case, based on the CME's preliminary term sheet, bitcoin trading limits would kick in when the price of its bitcoin futures move 7%, 13% or 20% up or down from the previous day’s closing price. The first two thresholds, for 7% and 13% moves, are “soft” limits, which would trigger a two-minute pause in trading of bitcoin futures. The 20% limit would be a “hard” stop on how far CME’s bitcoin futures could swing on any day.

By comparison, the CME has similar staggered volatility control on its popular E-mini S&P 500 futures contract, which also has three successive price-fluctuation limits at 7%, 13% and 20% during regular trading hours. A nighttime limit of 5% was hit in the S&P 500 futures on Nov. 8, 2016, when news of Donald Trump’s upset win in the U.S. presidential election triggered wild volatility in stock-market futures, only for the S&P to surge 21% in the 12 months since.

Of course, bitcoin will be a far "wilder" and more volatile instrument than the S&P 500 (one hopes). According to Coindesk calculations, so far in 2017 there have been two days in which bitcoin’s price swung more than 20% in a single day. There were 11 days in which it moved at least 13%, and 69 in which it moved at least 7%.

The full bitcoin contract specsheet is below.

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0valueleft's picture

Pad all the corners, nobody is going to feel to bad or to good. Fucking Harrison Bergeron distopia. Where do think these CB's are for the Dow or S&P??? We wouldn't fucking know now would we?  3% 4% 5% would be my fucking guess.

silverer's picture

So to force the failure of Bitcoin, take away the free market feature and treat it just like the worthless US printed dollars and equity stocks piled up around the world. Yep, that will do it.

breaktwister's picture

Is it possible to take delivery? Does the exchange guarantee delivery?

Ink Pusher's picture

Getting the CME to deliver is like trying to pull teeth from an unrestrained rabid elephant.

King of Ruperts Land's picture

No delivery - cash settlement based on an "index" - bogus - not a real market.

fattail's picture

It will be settled off of a cash index of the Bitcoin exchanges. There will be no delivery.

francis scott falseflag's picture

What, Sir, are you saying?  No delivery of thin air?  Preposterous.   

Peak Finance's picture

I don't think that anyone who likes Crypto should let the CME's poor decisions cloud your judgment.

I would never, ever buy these contracts, and not really sure why anyone else would either, except maybe the ability to buy / sell futures options contracts, since there is currently no Crypto options trading that I am aware of. 

Bay of Pigs's picture

Not sure why? You're kidding right?

The Wall St. Banksters will buy this shit with both hands.

Mr_Potatohead's picture

So please explain to me how buying crypto options is clouded judgement while buying undeliverable cryptos or fractions of cryptos is not.

Peak Finance's picture

Sorry I am not too clear sometimes. 

I think the rules on the trades and the breakers show poor judgement on CME's part, and, trading crypto is so easy I don't see why you would use a futures contract and not just trade the coins directly on a trading platform.

If it's because you want to trade cryptos, using futures type leverage, that kinda makes sense but with the current coin volatility it is literally fucking insane. 

Only upside I guess would be the ability to buy futures options contracts, which I kinda like and see a use for. 

Mr_Potatohead's picture

The really fun part for the CME is when it changes margin requirements mid-stream to create enormous pressure on one side of the trade (normally the long side in metals).  Great way to accelerate a sell-off to benefit those who sold call options.  Anybody who thinks the games played with silver and gold aren't coming to bitcoin is going to get quite an education.

Rhetorical's picture

Long BTC 100x leverage. Set a course for gains. No stops.

bcking's picture

The catch is that the CME has no authority over Bitcoin in any form. Fuck these guys. What a bunch of dicks.

Mr_Potatohead's picture

How long does it take to execute a bitcoin trade versus a futures trade?  What happens to the bitcoin price if futures stop trading?  Does bitcoin stop trading too, or does it keep cranking?  What happens if futures stop trading at delta 7, 13 or 20% and bitcoin keeps trading well beyond those limits?  Interesting questions for something promoted as a serious currency and store of value...   This is going to be very entertaining to watch!

Let it Go's picture

It keeps cranking, danger ahead!

Rickety Rekt's picture

Executes in seconds. And they cant halt the exchanges so they are SOL!

Bumpo's picture

They're separate markets. One has nothing to do with the other. Honeybadger don't give a shit. CME can play in their sandbox all they want, but they exist on separate planets.  Now if Wall Street starts buying actual Bitcoin, that's a different story, but there are some LARGE WHALES out there from the very beginning, ready to destroy the Shorts if they try and get cute.

Mr_Potatohead's picture

"Now if Wall Street starts buying actual Bitcoin..."

True, but what happens if they instead decide not to buy bitcoin and opt for selling futures to people who otherwise might have bought bitcoin itself?  If you think their buying could send things up, then you have to assume that their selling could send things down, right?

0valueleft's picture

This will drag out the infancy to expansion. A little time buying for the IMF.

Let it Go's picture

Furtures are a very dangerous game to play. Things in the cryptocurrencies area are changeing very fast. It was only recently that I came across the term ICO for the first time and quickly found it stood for initial coin offering.

This whole sector of investing is on fire but even as values surge warnings are coming out of fraud and other issues. The article below is aimed at answering questions about this sector.

 http://Bitcoin, Cyptocurrencies, And ICOs html.

Son of Captain Nemo's picture

If just doing transactions through the "Wanna Cry" viruses and potential crippling network events like DDOS attacks and ones we don't know about "yet" from the guys that carry the keys to all of the commercial "back doors" (http://www.zerohedge.com/news/2013-12-30/how-nsa-hacks-your-iphone-prese...)!

This is simply more "icing on the cake" for the guys and gals that control every facet of the NYSE/NASDAQ and S&P!

Champagne please!

King of Ruperts Land's picture

This is a bogus contract as there is no actual settlement in bitcoin. Rather there is cash settlement of a made up index. Sort of like the "official" Venezuelan bolivar exchange rate I suppose.

I am waiting for the futures exchange where prices, margin deposits, and settlement is in Bitcoin. Then just trade the US$ contract.

Mr_Potatohead's picture

Dream on.  Look at what is done with more traditional stores of value.  CME's arrival means a trainwreck for the bitcoin price.  This ain't rocket science!

breaktwister's picture

It is possible for the real exchanges where Bitcoin is actually traded to ignore this fantasy index price. Maybe then the real market for PMs will wake up and ignore the bs paper price leading to a collapse in confidence and ultimately complete collapse of the comex? We can but dream

Mr_Potatohead's picture

It's barely possible, but not likely.  Why do you think the CME is entering this game?  Do you think it's to help current bitcoin holders?  I encourage you to dig into the effects of futures and derivatives on the prices of commodities, currencies, stocks, bonds, interest rates, etc.  The paper price might be BS, but you'll be amazed by how well this tail can wag the dog.

ultraticum's picture

Kinda like the precious metals settlement in the underlying commodity?  /s

francis scott falseflag's picture

 

How old are you now and how long are you prepared to wait.

Have you considered term life insurance?  Just sayin'.

Bay of Pigs's picture

Bogus contracts and no actual settlement?

You mean like gold and silver?

EHM's picture

Nice try. These fools think Bitcoin is the only crypto. People will just move to another chain. Good luck!

Bumpo's picture

I think its the other way around. BTC will remain the all powerful independent store of value, while B2X or BCash will be the Wallstreet darling, runner up trying to be #1.

CCanuck's picture

+1 Bumpo
B2X will lay with the dogs at the CME.

The fleas will get fat, but it will not stop the monetary revolution.

It doesn't matter if you like it or not, digital currency in one form or another is the future, you can whine or you can learn and earn.

francis scott falseflag's picture

Sorry, but the future is trillion dollar plus deficits as far as the eye can see

and/or the doubling of the National Debt every eight years.

 

The Monetary Revolution  ==  look, the suspenders on that squirrel match his garters.

I saw them at Paul Stuart last week.  Pricey.


 


Hope Copy's picture

and one should.. to a crypto that is not so over valued that you have to report one's every move with it.  Something that divides into nice parts below the $1200/quarter; that where taxes are owed for services rendered..

coast1's picture

agree...there is also bitcoin cash

ReturnOfDaMac's picture

SOOO BULLISH!!!   CME can now naked short the living hell outta crypto just like they do with Gold.  On the extremely rare case where the trade doesn't work out, they can settle in fiat or CME "store credit", or some such paper bullpuckery.  Brilliant.  Viola, alchemy at it's finest hour:  Crypto-fiatchery!

Bumpo's picture

Bitcoin is bitcoin, not settled cash. 

Mr_Potatohead's picture

What kind of currency did you use to buy bitcoin?  What kind will you get if you sell? How was the price for bitcoin established?  What do you think happens to the price when people who normally would have bought bitcoin decide to buy futures from somebody who is creating a supply out of thin air?  Less buying of bitcoin, right?  Less upward pressure by those with cash and more downward pressure from guys who sell contracts without actually owning bitcoin.  Think carefully about where this scenario goes next.

CCanuck's picture

Mr P
Whatever btc coin the CME infects will be dropped by those in this monetary revolution. People seek freedom from these leeches, parasites and centralized bullshit. Crypto currencies have grown on this fundamental idea. The curtain has been pulled back, those who buy futures at the CME before looking deserve to end up skinned muppets.

Ccanuck

ReturnOfDaMac's picture

CCanuck, THAT is what you don't get. There IS no escape.  As long as they have a printable currency accepted about the globe they win.  Do you think they actually have to OWN the bitcoin they short?  Ha, ha, ha, don't make me laugh!  Do you think they own the gold they short? Ha, ha, ha!  This is Lex Luthor level criminal GENIUS!  With physical gold they actually pretend to have expensive vaults, with a digital currency they can do away with even this minor expense.  These guys are good.  Going long more bank stawks, this is really bullshit .... ooops BULLISH !

francis scott falseflag's picture

Nobody is going to sell bitcoin when it's going up.

Nobody is going to sell bitcoin on limit-down days.

Let the buyer beware.

Hope Copy's picture

Yup and all legal.. right there in Frank - Dodd

coast1's picture

jamie dimon and all the high bankers are what is driving the price higher...wake up people

ReturnOfDaMac's picture

It's beautiful man, beautiful!  And bullish too

Krink26's picture

Uhhh, all you haters about futures you're missing a few big points. The biggest being if y'all looking for that $100k price the institutions need to be a part of it and this is a huge step. Next it's a hedge - a derivative of the spot market. Just because the futures market hits limit up/down it will not have any meaniful affect on the spot market. Finally this will bring with it a huge amount of leverage, even more when options on futures come out. 

Had anyone seen what margin will be? I'm also curious to see how contango and backwardation will be calculated.

0valueleft's picture

Awesome sarc. very subtle almost sincere.

bluskyes's picture

the "fantasy football" of CME contracts. Are you kidding me?

Dickweed Wang's picture

From the start this plan by the CME to open BTC futures trading is a transparent ploy for the TBTF banks (that control the CME) to try to manipulate the BTC market . . . just like everything else on that "exchange".

Will it work is the question . . . 

Joebloinvestor's picture

I thought one of the big advantages of cryptos was getting away from these criminals.

This is going to end badly.

Bunga Bunga's picture

So it means these funny futures won't trade most of the time given Bitcoin's volatility.