Did Bitcoin Futures Products Influence the 2018 Crypto Markets in Positive or Negative Way?


Last December Cboe’s XBT futures contracts and CME Group’s bitcoin derivatives products had entered the crypto ecosystem. A year has passed, and it has been a roller coaster ride.

Many market participants, who cannot hold spot positions in bitcoin cryptocurrency due to compliance regulations, can now trade bitcoin futures contracts. Futures contracts also offer risk mitigation and hedging possibilities.

There are reasons to believe that it was the introduction of those introductions of Bitcoin futures that led to the fall in prices.

How Bitcoin Futures Products Affected Cryptocurrency Markets in 2018

Despite all inconsistencies in the price discovery mechanism and the large variance of volatility impact on futures pricing, futures trading remains a high-stakes game. Combining it with the 24/7 trading in spot prices adds another layer of complexity to valuing futures. Nevertheless, bitcoin futures trading continues to draw interest as this volatility and uncertainty also allows for profitable opportunities.

The Chicago Mercantile Exchange (CME) recently announced record trading volume for 12,878 contracts for bitcoin equaling a notional value of $350 million for bitcoin futures. In all, contracts for 64,390 bitcoins were traded during that time. Those figures surpass the previous record for bitcoin trading set in April of this year when more than 11,000 futures contracts changed hands at CME.

Despite bitcoin being in the midst of a long drawn-out bear market, the new year will see two new competitors to the industry. The Nasdaq is moving ahead with plans to launch its own bitcoin futures product in 2019, and the parent company of the rival New York Stock Exchange, Intercontinental Exchange, said it would launch a bitcoin futures contract in January.

Intercontinental Exchange (ICE), NYSE’s owner, is creating a new startup called Bakkt, which has plans to launch bitcoin futures contracts with physical delivery in November. Up until now, bitcoin futures contracts have been based on bitcoin prices at cryptocurrency exchanges. The problem with this approach is that operations at these exchanges have remained outside the purview of regulatory authorities. As a result, institutional investors, who typically provide liquidity to futures markets by making markets, have largely stayed away from bitcoin futures contracts.

Nasdaq, the securities exchange considered as the second contender to the New York Stock Exchange, will be launching futures contracts for Bitcoin (BTC). This report has since been confirmed by the Vice President of Nasdaq's media and communications department, which stated that the contracts will officially be listed and launched fully by the first half of 2019.

By ensuring delivery of physical bitcoin, these platforms will be fitting out a key part of the custody infrastructure required to equip bitcoin for mainstream acceptance. In turn, this is expected to attract institutional investors and liquidity to the ecosystem.

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