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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Mr_Potatohead's picture

Kinda convenient if you want to sell boat-loads of call options and you're in a position to do it as trading resumes for a few seconds before the next drop stops trading for the day.

spanish inquisition's picture

So what, are they going to try to set the price at the morning fix? Gonna have to pony up more than a Bollinger if you got Muppets to screw.

White Devil's picture

Keep on manipulating

GoldHermit's picture

Bitcoin is fucked when futures come online. I’ve invested in gold for years and have seen more schemes than many. Many people are going to get very hurt.

BaaadSheep's picture

Only because the CME sets the gold price... they cant set price of bitcion

mosfet's picture

One would think, but Bitcoin and all other cryptos spike and drop like a rock at its mere mention by anyone in the media.  Fradulent exchanges like CME & LBMA know they can display a price of any commodity and sheep will accept it as the word of god.  The difference between crypto and just any commodity is that anyone can instantly buy the real deal from any crypto exchange.  So that leads to the question of whether CME plans to eventually start exterting pressure on major exchanges to accept their dictated price vs the market one.  Time will tell but the banksters so far have a perfect track record at crushing free markets.  Let's hope they get their asses handed to them on this one.

Look on the bright side...If the banksters win in supressing Bitcoin price it'll be good for ETH, BCC, Gold & Silver.

Brazen Heist's picture

What's even more interesting are atomic swaps....getting rid of centralized exchanges and enabling purely OTC (P2P) trading of crypto. If atomic swaps prove to be a success, this could render many exchanges out of business. Some quasi forms of atomic swaps exist at the moment called shapeshift technology, although this is not yet fully P2P, still relying on exchanges, although not requiring an account with an exchange (done from wallet to wallet). Even moreso, cross-blockchain cryptocurrencies, also in development, stand to break new ground.

The fact of the matter is, the rate of technological development in decentralized markets far exceeds development in centralized markets due to less rigidity. If this continues in the expected exponential fashion, crypto will always be 10 steps ahead.

GoldHermit's picture

There will be x number of bitcoins in existence and contracts for 100000x bitcoins - no possible way to deliver - bedlam

 

GoldHermit's picture

Not accurate at all.  London Fix - commercial banks main culprits

Brazen Heist's picture

Banksters will try to use futures as a tool for manipulating the Bitcoin price, like they do for every other asset. 

The physical gold market is a prime example where futures have been used to suppress price.

This is going to test Bitcoin.

The battle is on...financial warfare between the centralized financial system and the decentralized parallel financial system of cryptocurrencies.

BaaadSheep's picture

and give 'coiners' the opp to kill the CME - just wait till shorts are high and close to expiry and crank up the price. CME will have to cover because they dont own any of it (else the emporor will be revealed to have no clothes)

Brazen Heist's picture

Its getting interesting. I like the power struggles being set up. There is quite a big libertarian community in crypto space that opposes the cartel.

Crypto is definitely more of "our" system than the cartel. At least with the freedom it offers and cutting out the middle man.

I don't know how this CME thing will work out. The CME in my opinion is driven by FOMO in this case.

JailBanksters's picture

CME and Bitcoin means they've worked out how to defraud the system.

Hope Copy's picture

LoL.. Years ago I got caught long on corn and had to endure a week and a half of limit down and that was by the 20 cent rule.. 20% is initially more devastating going down than up..  You should consider that and so it goes..

afronaut's picture

Always buy deep out of the money puts as insurance.They would have made money on that limit down move

 

 

 

 

BaaadSheep's picture

Wait wait wait... so the CME is allowing people to bet on a security, without holding the actual security themselves?!? How the fuck does that work.. 1billion times leverage?

Davidduke2000's picture

you just woke up? they have been doing this fraud for gold and silver for over 20 years. 

mosfet's picture

Before they start outright naked shorting of Bitcoin, they'll of course need to employ circuit breakers to see how much they can rein in and 'manage' the price.  Can't have any 'unauthorized' bank smash downs now can they?

PhiPhi's picture

Somehow I don't think this will work out the way the CME want it to, seems like a desperate rearguard action to me.  These stops won't make a difference to the actual bitcoin price and if the index can't keep up with BTC volatility it's going to run into all sorts of problems pretty quickly.   

TradingTroll's picture

I agree completely. If the CME cant keep up with the BTC volatility across independent exchanges, then it truly is awe-inspiring how advanced BTC is and how outdated the CME is.

 

BTC trades on volatility, as that is where the profits are. CME will cap profits.

 

Or maybe thats what they want, to drive more investors into actual BTC. I understand the problems with gold but dollar for dollar, storing your BTC in a few different offline wallets is far cheaper than the gold in the safe with the special insurance. Just the annual insurance on $1m gold is a few grand. The safe is a couple of grand more.

Ten Ledger Nano S are under $1000, for example, with no annual cost.

Ink Pusher's picture

I find myself Not to be inspired , but actually completely disgusted with a cheesy re-branding tactic on a failed fake currency product called FLOOZ and beyond disappointment because of the degeneration of any remaining common sense across the scope of the entire human race...

Stupidity and Negligence are now being rewarded.

 

Davidduke2000's picture

before we know it the cme will have futures for houses and cars, BMW X4  2018 will be $2000 and 5 room home in Boston $23000, what's good for gold and silver is good for bitcoin, houses and cars. 

VWAndy's picture

 Ha ha suckers. Now might be another good time for proffit taking. jus sayin.

East Indian's picture

Money changers ahoy!

Blue Dog's picture

The futures contracts won't impact the real price of Bitcoin which is determined by a number of different exchanges. Not only that, if the futures contract prices don't reflect the real price of Bitcoin then there wouldn't be any reason to buy from them. 

Davidduke2000's picture

don't bet against the cme , gold is much larger market than bitcoin and they have been playing with the price for over 20 years.

ZeroPoint's picture

How is there a futures market for Bitcoin?

afronaut's picture

Up next, crypto mutual funds.

francis scott falseflag's picture

A HUGE DIFFERENCE

Yesterday, when the Emperor showed off his New Clothes, he was standing there with his imperial dick out.

 

Today, bitcoin buyers buy the Emperor's New Clothes, knowing they can't wear them or keep them in the closet.

 

plus ça change, plus c'est la même chose
you_do's picture

Hmm..

Taking delivery of BTC...

Or settle for cash?

ReturnOfDaMac's picture

Get long "lube", a whole lot will be needed.