Is the End of Cboe Crypto Futures a Sign Institutional Interest is Fading or Overblown Reactions?


Cboe alerted its traders that it decided to not renew its future contracts with bitcoin. There are several interpretations of what this means. Some believe that it is a sign that crypto is coming to an end, while others believe that it shows that expectations concerning institutional interest are misplaced. And there are those who think that the others are making too much of the news.

The news seems to be startling, especially because of Cboe’s position as being the first to offer bitcoin futures in December 2017. After Cboe made the move, another platform, CME, did the same. After CME started to offer bitcoin futures. For some time, though, both have been experiencing a decline in volumes and it may also be the case the traders prefer CME.

The preference for CME may be due to its size – it is larger than Cboe Futures Exchange. And there is no getting by that size is important when it comes to commoditized markets due to connectivity.

Also, CME may have preferable settlement methods. Cboe determines the price of its contracts by the Gemini auction price. As for CME, it relies on an indices that feature data from liquid exchanges. The former may have more reliability, which is another reason that investors prefer Cboe.

Cboe’s decision to end its contract with bitcoin futures may not have such a noticeable impact on trading strategies though. CME also intends to continue offering bitcoin futures, which means that those who cannot use Cboe can turn to CME.

There are some that are certainly pleased with the situation, as they believe that cash-settled derivatives are important to hedge bitcoin positions. The argument is that the market is more robust and reliable, and less manipulative, with bitcoin futures contracts. There are also platforms that are looking to release products in the area. For example, Bakkt and ErisX plan to offer physically-settled bitcoin futures. The issue is that their entrance on the market may not bring institutional players in the market, thus the volume of bitcoin futures may not increase for CME.

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