This Is Where The CME Would Halt The Bitcoin Plunge

If Bitcoin futures were trading, they would have just triggered the first circuit-breaker at a 7% plunge threshold...

Of course that would have just halted trading for two minutes on the futures exchange - not the underlying bitcoin exchanges.

As we detailed previously, 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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For now Bitcoin is down 18% from its record high - closing in on a bear market...



Golden Phoenix BaBaBouy Fri, 11/10/2017 - 14:58 Permalink

The CME has no authority to stop the trading of independent crypto markets whatsoever. CME bitcoin futures will not incorporate actual delivery. They will represent pure derivative directional bets just as one would bet on one sports team or the other. That said there's nothing illegal about owning a future contract then spreading fake news FUD about the underlying market. 

In reply to by BaBaBouy

Aftoward abyssinian Fri, 11/10/2017 - 14:43 Permalink

Presuming they actually establish a viable Mainnet, it becomes mineable using Equihash on Sunday. It potentially could be huge as there will be no need for ASIC's to mine it. I know a number of GPU miners, including me, who are watching this very closely. BTG futures are up to $180 as I write this.

In reply to by abyssinian

Golden Phoenix tmosley Fri, 11/10/2017 - 14:45 Permalink

They'll be needing it to hit at least $1800 just to match the past performance of the guys who sold at the August highs then doubled the proceeds in BTC. If it doesn't then it's back to hodling and hoping. Suggestion: Watch Monday and Tuesday before you decide if BCH is the real thing or a fork pump and dump. 

In reply to by tmosley

Golden Phoenix cheka Fri, 11/10/2017 - 14:40 Permalink

The proceeds from a 51% attack on bitcoin would be miniscule compared to the resources required to pull it off. It could only be attempted one time. If it succeeded then the expensive equipment designed for mining bitcoin would be rendered useless in the process. Anyone attempting it would be working against their own best interests because they'd financially wreck themselves for little gain. If supporters of a competing coin attempted this and it were proven their own coin would be wrecked.Tone Vays made an interesting comment. He said he pointed out to some people if they caused one bad dark web person to lose millions something very bad could potentially happen to them. Those same people subsequently reversed their 2X position.Point being free markets and communities such as the crypto community are fully capable of policing themselves in a surprising variety of ways with no need for governmental intervention. 

In reply to by cheka

Drachma Golden Phoenix Fri, 11/10/2017 - 15:16 Permalink

I thought the whole crypto community polices the distributed ledger by consensus (i.e. >50% of supernodes agree on the chronology of transactions). This is touted as one of the blockchain's strengths, because supposedly no one entity can outpace the computing power of the rest of the newtork. What's to stop a 51%er from validating their own transactions onto the blockchain and double-spending until their heart's content? Wouldn't those be accepted by definition? How would waiting a few blocks for confirmation help anyone if the transaction is initiated by the entity creating the consensus? How is it that the crypto community would know where this 'consesus' is coming from exactly? Please explain. Just trying to learn. Cheers.

In reply to by Golden Phoenix

tropicthunder Fri, 11/10/2017 - 13:44 Permalink

I bet the margin requirements will prohibit most small speculators from trading this shit..I wonder how many "commercial" users actually need BTC hedges.Seems more like a mechanism for TPTB to smash, crash, hammer and pound BTCUSD prices..

Mister Ponzi tropicthunder Fri, 11/10/2017 - 15:42 Permalink

> I wonder how many "commercial" users actually need BTC hedges.The lack of a hedge is the main reason many merchants haven't accepted Bitcoin as a payment method so far. A friend of mine who is a precious metals dealer told me he would like to accept BTC but fears its extreme volatility may lower his margins. If you are a merchant with high revenues the lack of a hedge can cost you a lot. So, we will see whether the introduction of BTC futures at the CME will make merchants adopt BTC for payment.

In reply to by tropicthunder

AGuy semperfi Fri, 11/10/2017 - 14:41 Permalink

"if YOU had 6 gold coins, would YOU trade it for 1 bitcoin ?"

I won't trade one gold coin for 100 BTC. In the long term, BTC is headed to to zero. But I doubt it will go to zero anytime soon. It will likely be a slow and painful slide down over years, once the euphoria with BTC and cryptos are over.

In reply to by semperfi

ReturnOfDaMac Fri, 11/10/2017 - 13:48 Permalink

"most trading in the digital currency is on exchanges outside of CME’s control"  ---- what a crock of horsepuckey.  Doesn't stop them from doing it with gold.  Gold shops and miners are outside CME's "control" and yet they can still cap the price.  It will work man, c'mon exchanges pull it! Now how do I short the exchanges when this thing blows up in their faces ...

ReturnOfDaMac DrumpFired Fri, 11/10/2017 - 13:57 Permalink

That is the beauty of these fake, western, so-called "exchanges".  You never have to either own nor deliver the actual commodity.  Trades mostly settled in paper.  Take the precious for example, most of the real metal is traded in China.  But the price is set in the west.  All that really gets traded in the west is paper: fiat or rolled over contracts.  This is Lex Luthor level criminal genius.  And whether I like it or not, I always admire the genius ...

In reply to by DrumpFired

Golden Phoenix Fri, 11/10/2017 - 13:51 Permalink

This Bitcoin pullback has highlighted the rule of buying a fork rumor and selling the news. Part of the responsibility for bitcoin's drawdown is supposed to be Bitcoin Cash. Interestingly Bitcoin Cash is scheduled to technically fork Monday. Does the same logic apply to it or is it different this time?If the Bitcoin Cash pump were to go to 1k then drop away where does the money go?