CBOE Bitcoin Futures Trading To Begin On Dec 10th - Not All Brokers Enthused

Tyler Durden's picture

CBOE Global Markets said on Monday it would begin trading its bitcoin futures contracts, known as XBT futures, next Monday, and will offer free trading for the rest of the month to help draw in traders and create a market. Both the CBOE and its crosstown rival, CME Group, received permission last week from the CFTC to launch bitcoin derivatives as they go head-to-head in a battle to determine which exchange will come to dominate the market for bitcoin-linked derivatives, the Financial Times reported. CME Group, the world's largest derivatives exchange, won't launch its set of bitcoin derivatives until the following Monday.

Both exchanges are hoping that rising interest in the controversial cryptocurrency from Wall Street traders will in turn help drive demand for its new derivative products. A flood of interest has gripped the digital currency community as Bitcoin's value has ballooned this year, at one point climbing 1,100%: Early on Monday, the digital currency rose to an all-time high just shy of $12,000 a coin - nearly six times its level from early April.

Many institutional investors have been eager to trade bitcoin, but are waiting for a more widely recognized, regulated market. Shares in both CME and CBOE have risen 9% since the end of October as they have firmed up their plans.

Ed Tilly, chief executive of CBOE, said there is “unprecedented” interest in bitcoin.

“We are committed to encouraging fairness and liquidity in the bitcoin market," he said.

CME and CBOE are competing to dominate the market for bitcoin derivatives by offering different products. They also have different systems for pricing their products. CME is relying on a daily reference rate based on data from a aful of constituent exchanges. The rate is set daily at 4 pm ET Londont Time. CBOE's contracts are based on a daily auction price from Gemini, the virtual currency exchange run by twins Cameron and Tyler Winklevoss. Investors may not own or control more than a net 5,000 contracts, long or short combined, and the market will only be open for less than six hours per day.

Both exchanges are insisting that deals will be settled in cash the day after contracts expire.

Some investors, particularly electronic market makers, have expressed an interest in the products. But they've also made their reservations public.

According to the Financial Times, DRW of Chicago, one of the world’s largest proprietary trading companies, has a subsidiary named Cumberland for buying and selling bitcoin.

“Although DRW and Cumberland haven’t been directly involved in the design of these contracts, our recommendation to any exchange that has asked is to list a physically-delivered bitcoin futures contract,” a spokesperson for DRW and Cumberland said.

 

“Products indexed to a spot exchange or related auction will be inherently flawed due to the constraints that currently exist on these spot exchanges."

The market’s main regulator, the Commodity Futures Trading Commission, has had concerns that futures correlated to the highly volatile bitcoin price could create instability in clearing houses, the market buffers that act as counterparties to a trade and prevent any defaults from infecting the rest of the market. Though that didn't stop the CFTC from granting its blessing to the two exchanges. CME will demand from investors an initial margin of 35% to back the trades in its clearing house, while traders using Cboe will need to pay 33% of the trade price upfront.

In a speech in London last week Brian Quintenz, the CFTC Commissioner, said the agency had the powers to raise the margin levels if it felt the amount held by a clearing house was inadequate.

“It is incumbent on market participants to conduct appropriate due diligence to determine whether these products, which have at times exhibited extreme volatility, are appropriate for them,” he noted. Now that the exchanges are offering bitcoin-related products, popular brokerages must now make a difficult choice: Will they offer futures contracts tied to bitcoin to clients to meet popular demand even though many in the financial services industry believe the digital currency has created a massive bubble.

TD Ameritrade Holding Corp. and Ally Financial Inc.’s Ally Invest said they will offer the derivative products to customers once they become available, according to Bloomberg. Fidelity said it currently has no plans to offer the bitcoin futures - which is ironic, since the company's CEO allowed customers to link their Coinbase accounts to their Fidelity dashboards. Other major firms declined to comment.

Some market strategists believe the launch of derivatives products will help introduce a higher degree of "two-way volatility" into the bitcoin market.

“What’s exciting to us about it is it provides a two-sided market,” JJ Kinahan, chief market strategist at Omaha, Nebraska-based TD Ameritrade, said in an interview last month.

 

“With natural buyers and sellers, that helps to put a more reasonable volatility on the product.”

Brokerages say they plan to offer the bitcoin futures and options because of popular demand.

“Ally Invest customers have specifically expressed interest in the futures product the Chicago Mercantile Exchange is planning to launch that is based on bitcoin,” Rich Hagen, the brokerage’s president, said in an emailed statement Nov. 28. “If the CME does launch this product, Ally Invest plans to offer it to current and new futures customers immediately.”

According to Bloomberg, Bank of America Corp.’s Merrill Lynch and Morgan Stanley declined to comment on whether they will offer bitcoin futures, as did Charles Schwab Corp. and E-Trade Financial Corp.

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DC Beastie Boy's picture

Naked as in no collateral and cash settlement

shitshitshit's picture

it will be interesting to see how will the tether fraud and bitfinex obvious pumping scheme unfold now that things are magically tied to law enforcement now...

Killtruck's picture

I've yet to see anything these shitheads can't fuck up. 

Just give them a year or two, and BANG...derivatives, bitchez!

Blythe is probably creaming her slacks thinking about this deal. 

RAT005's picture

I haven't seen the Bitcoin crowd complain about this.  Did they pursue it or try to resist it? Can't imagine this is anything but bad.

Mementoil's picture

After telling us for years that naked shorting of gold on the COMEX is the reason why gold will never rally again, I fail to understand how the Bitcoin people are enthusiastic about their asset class getting the same kind of "tough love".

SoilMyselfRotten's picture

For those familiar with GBTC, any thoughts on how this whole futures addition will immpact its price? It is already at best loosely correlated to Bitcoins price but im thinking it may become much less correlated in the future.

Gap Admirer's picture

This is so much fun to watch!

Will futures markets be created for the other 1300, plus, valuable crypto "currencies?"

Michigander's picture

"Many institutional investors have been eager to trade bitcoin, but are waiting for a more widely recognized, (regulated) CORRUPTED market."

Fixed it for them...

HungryPorkChop's picture

Clif High's prediction is this will intially hurt BTC's price.  Then something breaks since they don't actually have the BTC (think Mt. Gox Bitcoin ponzi scheme) and then its off to the races again.  In short, massive price volatility is a wicked beast to tame.

nope-1004's picture

Clif High is a complete moron.

I don't know what bigcoin will do, and that's neither here nor there, but putting ones faith in Clif High is the dumbest thing anyone can do.  He lives an imaginary life and by listening to him, you're joining in the psychopathy.

 

SoilMyselfRotten's picture

One mans moron is anothers savant

Golden Phoenix's picture

Wow, we agree on something. His 'web bot' is probably just him manually checking the popularity of various Google search terms.

wren's picture

People prefer BC because it takes the government out of the equation, now Wall Street invites government into BC. I see nothing good coming from this. Time to start watching the value, I don't want to be caught holding paper gold.

Fuck Wall Street.

shitshitshit's picture

the fundamentals simply do not support the official narrative.

Everything is completely rigged by some whales and people will realize this the day the goxing will start.

But it will be too late for this.

Of course we can't rule out the hypothesis that it has been ordered by the PTB in order to destroy public confidence in crypto. The links between bitfinex and PTB would be interesting to study. Think about how well would this serve their purposes...

IH8OBAMA's picture

Coiners don't know what a whale is.  Mega whales who trade the futures will be in charge of the Bitcon price starting next week.

 

tmosley's picture

They have to buy first.

DDDDD:

shitshitshit's picture

ctl-P will help them through nirvana.

Contrary to you and me, they don't actually have to earn this money.

IH8OBAMA's picture

They have to buy first

Why do you think BTC made such a big move up in 2017?

Watch for them to suck in even more cash buyers while they build a short position in the futures before they let the hammer drop on the cash.  Easy money for a group of Mega Whales in a fledgling market.

 

NoCamelCase's picture

yup, the only way this goes down is after it goes up massively

 

Steelio's picture

Public ledger. You can't hide your assest in a fractional reserve system like physical gold. We can see you!

Abiotic Oil's picture

It will also be much easier to stand-for-delivery with BTC rather than take a cash settlement like they do with PM’s.

Don’t have to back up the armored truck. Just provide a wallet address.

Mementoil's picture

Futures contracts won't appear on the the public ledger, since they won't be buying and selling actual Bitcoins, but rather betting on the future price of Bitcoin.

ZeppelinJack's picture

they're simply too young to understand whats about to come their way. The bitcoin exchanges are dominated by millenials convinced of their status as mdoern day 'traders', extolling the virtues of their stochastic indicators and RSI's and the foolproofness of thier trading strategy that are in effect nothing more than long only/buy and hold (or hodl as its now being deemed).  They are truly convinced of their omnipotence, its both horrifying and sickending at the same time.  I mean these squirts havent seen what happens when everyone rushes for the exits at the same time...they were shitting themselves to sleep at night all the way through 2007-2009..waking up to mommy's tit in the morning after a nice bath...and now they're trying to teach everyone their damn trading strategies...??!!  it defies belief, really.

Seriously, i've been looking at the trading on the GDAX exchange (amongst others) over the last 2 weeks and, having come from an insitutional securities trading background, feel I am qualified to make a few observations...

1.  There is fairly broad based liquidity.  But it is razor thin.  Huge pockets of liquidity on both sides of the order book.  Market orders of 10-20 bitcoins can launch or plummet the price several hundred dollars.

2.  There is prolific spoofing/market manipulation.  Which, given the liquidity in the markets, is both easy to do, and technically not unlawful given its an entirely unregulated product/exchange.

At this point all I can say is that, right now, its a tsunami (futures) barrelling down on a storm in a tea-cup ($200 clips on retail dominated exchanges)!

Its going to be a disaster of epic proportions!  I mean lest we forget about all the UK and European retail brokers that are writing synthetic derivatives (CFDs) on bitcoin and altcoins already (IG, being the biggest of them all) that have enjoyed a one way market with little to no hiccups along the way.  What happens when the markets takes a turn and all of a sudden all those long-only retail clients hit the 'sell my bitcoins and give me fiat' buttons on their webportal trading platforms?!  Its going to be fucking epic!  truly, it is!  So much so, i'm buying a couple of corn futures because the popcorn that'll be consumed during this catastrophic collapse will be fucking glorious in its scale!

Lastly, I'm really concerned at the stark absense of the 'tail wagging the dog' comments in relation to this pending futures market.  Is it just me, or are we about to get a lesson in the undeniability of this phenomenon?  Surely nobody actually beleives that the derivative is, and will continue to behave, as nothing but a derviative?  Oh no! make no mistake, this fucking tail is going to wag the ever-loving balls off this dog my friends!

Mementoil's picture

+100 just for the popcorn remark!

shitshitshit's picture

fantastic rant, thanks you very much indeed Sir.

LawsofPhysics's picture

Great comment!  Moreover, just let me add that I knew several programmers/code writers who use to work for Netscape back in the 90's who went to work for primary dealer banks on cryptocurrencies.  Anyone who thinks that the primary dealer banks didn't see cryptocurrencies coming is a fool. They have wanted this since the dawn of the fucking telephone.

Wake the fuck up folks.

I too enjoyed the popcorn comment!  Nice work sir!

ZeppelinJack's picture

I know this to be true too.  I had drinks recently in the City (London) with a friend, where we spoke of the trading side of bitcoin which, at that point I hadnt spared much though about to be honest, but it certainly piqued my interest on the trading side that night.  This prompted me to start digging around the City to see what I could find out about whats going down on the market making side.  I've been aware of the major retail brokers in the city that are writing synthetic derivatives on bitcoin et al (CFD's and spreadbets) for some time now, years actually.  But never really thought about the underlying market infrastructure supporting all of this.  So in very little time at all I came to learn a few things...

1. IG, is the dominant player.  They appear to have a dedicated market making desk and their trading is pretty rudimentary. Clients are accumulating and offloading as normal, but net net they're long and accumualting BTC physical.  So said traders are purchasing the physical coins with cash on the various exchanges to hedge their client exposure.  This is all unicorns and rainbows for as long as their book grows while the market direction supports their accumulation.  At the same time they are charging their clients a 60 bps spread on the BTC/USD & GBP crosses (exchanges are as low as 1 bps on USD and quite a bid wider on GBP) and a wholesome overnight financing charge on the product (standard BTC product is 100 BTC notional, margined at 20%; mini product is 10 BTC notional, margined at 20% as well).  So needless to say, IG is making bank on their crypto trading no doubt. The kicker is the traders are walking around with USB keys filled with tens of millions of pounds of physical BTC (which I imagine must be freaking their risk managers out a little..)

Just a little aside before we get to the real kicker.  Recall Jamie Dimon's remarks about firing any of his traders that trade bitcoin, and how shit the whole thing is?  Well the disengenuous fuck head happens to have spawned the very team of traders making the market and managing risk for IG's crypto desk. Gasp..tell me it isnt true?  

So this is all fine a dandy, but lets inject a little thought experiment.  Lets assume this crypto market loses its perma-bid and goes offered into the ground at warp speed?  Our modern day millenial crypto traders think its perhaps about time to offload that position and convert back to fiat.  Enter IG trading platform, 'open positions', BTC/USD position - SELL. Multiply this effect by a few hundred, occuring non stop for a few hours and what do you have? A market making desk being put all these positions with furious abandon by clients who almost dont care what price they're getting as long as they're getting one, forcing IG to make the market - where there isnt one!  So IG is making a market 2-10% wide of spot, maybe, or whatever, but, but BUT they have a metric fuck ton of physical on USB keys they need to sell to raise the cash!  How exactly is this little drama going play out exactly?  What new age super computing risk management systems do they have to enable them to come out the other side of this one with both balls still in close proximity to each other?  I dont see it.  Rather I see the making of the next broker wipe out if we experience another exchange collapse/fraud/scam as is currently pending with bitfinex and tether, a la MtGox.

As of next week though, there's a possibility that the desk decides to start offloading the physical and replacing the exposure with/on the futures exchange.  Its a far cleaner product and enables a far mroe effective risk management strategy (run a small physical book, but offset the majority on exchange across the maturity curve) and this might go a long way to mitigate their risk.  However, this is of course predicated on the crown jewel of efficient markets - liquidity.  Or in this case, the lack thereof could precipitate an even quicker collapse.  A few successive 20% limit down days and those traders might just be wishing for the days where they only had to find buyers for their physical because the futures market tail will be wagging the dog, so to speak, with aggressive, reckless & furious abandon.

So, futures market or no futures market, the world of cryptocurrencies has a world of growing pains to endure anyway you look at it.  No doubt they will feature prominantly in the future, the technology and utility function is beyond dispute, the value however is rather subject to a little more uncertainty in my view and chances are good you're probably going to get another chance to purchase BTC at a fraction of todays price.

HRH of Aquitaine 2.0's picture

Seven years of silence you pick today, and BTC, to suddenly start talking?

I replied to a previous comment of yours with regard to anomalies I have observed on GDAX.

Interesting. For someone that has been silent to suddenly start blabbing about with whom they have drinks and private conversations is curious.

ZeppelinJack's picture

Its actually longer than 7 years.  I forgot my initial username/password because I never used it.  I've been a daily reader/lurker since ZH's 3rd or 4th original article on their first blog platform, but have never had the time or inclination, but mainly time, to enter into the foray of commenting.  I've worked in the city my whole career, having drinks with mates isnt exactly an odd phenomenon, what exactly do you find so curious about all of this chief?  And yes, after 10 years of boring equity and credit markets, I find BTC rather of interest.  What side of ths BTC fence are you on that you've taken offense to my foray into the comments section that you've felt it necessary to call me out on my prior silence on the forum?

NoCamelCase's picture

1. the market needs to get much bigger before the bags can be offloaded and money made on the downside.

 

Long term Bitcoin is here to stay - it is just a matter of how big it can get and how fast. These are no tulips but a useful invention.

Golden Phoenix's picture

'I missed out on the biggest bull run ever but I'm qualified to say jack shit'. 

 

DC Beastie Boy's picture

+1000

Bitfinex is a fraud they create Tethers buy BTC leverage long 3:1 on their own exchange and others and take profits converting BTC to real USD. They’ve done it and made billions this year, sometimes up to 20% of market volume.

Their downfall will be using USDT as the ticker.

ZeppelinJack's picture

No doubt about it.  Bitfinex and Tether (related) are a huge scam!  Again, those little retail millenial 'trader's' are about to learn something you can learn in no other way.

ZeppelinJack's picture

No doubt about it.  Bitfinex and Tether (related) are a huge scam!  Again, those little retail millenial 'trader's' are about to learn something you can learn in no other way.

YUNOSELL's picture

Hopefully it crashes and burns as well as people pulling out profits from the Bitcoin causing the Bitcoin itself to crash. That would show them we don't believe their bullshit.

HRClinton's picture

This is the (((banksters))) using Derivatives to reel in BTC, the same as they have PM.

 

cherry picker's picture

They have taken the concept of crypto and what I was informed some time ago it would feature:

anonymity

safe and traceable transactions

a place to store wealth vs banks and safe from .gov

 

They bastardized crypto and made it main stream and controlled.

Better of with cash, the old fashioned kind you can bury or hide or spend...

HRClinton's picture

If you really wanted to stick it to the banksters, you should do what I do: use Bitcoin to buy gold.

Neither is considered 'money' in the mainstream or bankster economy, but both are considered assets.

As such you can go Financial Gault, by doing an exchange in kind, ie assets for assets, ie cryptocurrency for gold.  And both are decentralized currencies in that Parallel economy.  If you could not pay for a service with crypto or with gold, you could always convert some of that gold into the add cash.

Given how banksters have manipulated and oppressed PM prices via Derivatives (Futures Markets), there is a silver lining: using cryptos  allows you to buy much more gold then your paycheck with all the deductions and no raises in the last 10 years. As I've said last night, using kryptos allows for a run on gold bullion, in a way   that people could not do with their regular paychecks. Ultimately, an escalating demand for gold will force the prices to go up, or they run out of gold.

Gap Admirer's picture

How are you getting around paying capital gains on your Bitcoin increases for the gold purchases? Are you in a country that doesn't have a capital gains tax? Other?

Number 9's picture

he/she went to europe and changed the btc to  gold and then euros and then diamonds

quadraspleen's picture

can only speak for my situation in the UK, but no CGT would be payable until I cashed in my BTC-bought AU for a profit on the AU (not the BTC).

They then have to prove how many BTC I swapped it for, then prove how much i paid for the BTC. All my BTC have been put in different wallets at the end of VPNs (private SSH servers) then tumbled.

They won't bother. They're still trying to collect an unpaid (not owed so won't pay kinda thing) bill from 2009.

Sure, it's not foolproof but it'll fool the tax authorities. It's a nightmare for them which is actually what all of the incoming regs are about.

Pesky Labrador's picture

You are simply trading currency with them. You have not spent anything so there should be no tax. At least in Texas there is no tax for exchanging green paper for gold or silver.

Gap Admirer's picture

If you sell gold/silver, that has gone up in value since you purchased it, for green paper I know that you have to pay more than capital gains tax on it at a federal level. You have to pay a "collectables tax."

I wasn't your down vote, BTW...

DC Beastie Boy's picture

Just bought some from Veldt today. They take BTC, LTC and soon Monero!

LawsofPhysics's picture

Yes, yes, just like they have "encouraged fairness" in the commodities "markets"...

LMFAO!!!

"Full Faith and Credit"

Bill of Rights's picture

I'd be taking profit here.

FreeShitter's picture

I took some at 11.4k, I am hedged IF this decides to take a shit bigly.

Number 9's picture

crank the fvkin stops down tight..