CME announces the launch of Bitcoin futures. What does the entry of Bitcoin in the derivatives market mean?

A financial derivative or derivative instrument is a financial product whose value is based on the price of another asset. The asset on which it depends takes the name of the underlying asset, for example, the value of a future on gold is based on the price of gold. Therefore, a Bitcoin derivative will be based on the future of the Bitcoin value.

Since Bitcoin (and cryptocurrencies) is the value that has increased its value by more percentage in 2017, the entry of this value in the futures market promises to be incendiary both for the world of cryptocurrencies and for the classic user of stock values. So much so that only the announcement that the largest derivatives broker in the world CME Group has announced the launch of a new product based on Bitcoin has triggered its price almost $ 300 and raising its historical maximum for the umpteenth time.

But what are futures, derivatives, and options? What will we buy when we decide to buy Bitcoin derivatives?

The general characteristics of financial derivatives are the following:

– Its value changes in response to changes in the price of the underlying asset. There are derivatives of agricultural and livestock products, metals, energy products, currencies, stocks, stock indices, interest rates, and now on Bitcoin.

– They generally allow to operate with borrowed money (credit operation), so they are leveraged products, which allows higher profits as well as higher losses. –

-Therefore, they are considered higher risk products than cash operations.

-They are settled at a future date to the acquisition of the contract.

– Can be quoted in organized markets (such as stock exchanges) or unorganized (“OTC”)

For the doomsayers who predict “the death by bubble” of Bitcoin every day (with or without it), it is necessary to say that this type of products is directly related to the mythical and very mentioned as an example by all addicts to financial catastrophes, bubble of tulips.

In the case of the tulip bubble, this was transformed from a seasonal market on some bulbs in particular to a wheel of futures and options contracts with annual maturities, the system collapses due to the speculative bubble.

Therefore the Bitcoin futures mean the entry of Bitcoin through the big door of the speculative market par excellence … Wall Street, and an injection of immense capital in the world of Bitcoin and cryptocurrencies.

All this long and soporific explanation comes from the announcement made by CME Group, the world’s leading derivative contracts broker, today announced its intention to launch bitcoin futures in the fourth quarter of 2017, waiting for all Relevant regulatory reviews by the SEC (Security Exchange Commission).

According to the press release published by CME Group “The new contract will be settled in cash, based on the reference rate of CME CF Bitcoin (BRR) which serves as a daily reference rate of the bitcoin dollar price. Bitcoin will be listed and subject to the CME rules. ”

The strategic reasons cited by CME for the creation of this financial instrument make clear the growing interest of investors in cryptocurrencies and the pressure they are exerting on traditional stockbrokers for the creation of instruments that include cryptocurrencies.

“Given the growing interest of customers in the evolution of the cryptocurrency markets, we have decided to introduce a bitcoin futures contract,” said Terry Duffy, president, and CEO of CME Group. “As the largest regulated derivatives broker in the world, CME Group is the natural home of this new vehicle that will provide investors with transparency, price prediction and more capabilities to balance investment risks.”

This is not the first step of the Chicago Mercantile Exchange (CME Group) in the field of cryptocurrencies since in November 2016 they launched, in collaboration with the London company Crypto Facilities, the first of the two indexes that will govern Bitcoin futures. CME, the BBR (a daily index) and then in January 2107 launched the second index, the BRTI (a real-time index)

“Since November 2016, CME Group and Crypto Facilities Ltd. have calculated and published the BRR, which condenses the commercial flow of the main bitcoin exchanges during an open calculation window starting at 4:00 p.m. London time of the price. in dollars of a bitcoin, The BRR is designed around the IOSCO Principles for Financial Parameters, Bitstamp, GDAX, itBit and Kraken are the most significant exchanges that provide the data to calculate the BRR and the BRTI. ”

If these products have to be validated by the SEC, the fact that they are presented by a company with the reputation of the CME Group makes it clear that they will be approved, therefore the doors of Wall Street open wide. for cryptocurrencies..for good or for bad, the FUTURE (in capital letters) will say …

Enric Martí

Enric Martí

Economy fan, hangued, hooked on crytocurrencies and junkie of audiovisual stuff...on rehab