Wall Street Investors Are Actively Swapping Bitcoin Futures For Physical BTC
Bitcoin is taking notable strides towards becoming a mainstream financial instrument. This week, two institutional investors from Wall Street completed the first-ever exchange for physical (EFP) transaction involving bitcoin futures.
Bitcoin has been steadily increasing in price from Friday, July 13th, when it was valued at $6,200. It has since gained by 35% to current levels of $8,345. This impressive rally in almost 2 weeks is the reason why many institutional investors are eyeing the king of crypto now.
The transaction was facilitated by E.D & F Man Capital Markets, a registered futures commission merchant and itBit, an institutional grade cryptocurrency exchange.
What Is EFP?
According to CME group, an Exchange for Physical (EFP) is a particular type of Exchange for Related Position (EFRP) transaction and may be executed in any CME equity index future in accordance with Rule 538 and any associated advisories.
EFP transactions allow the traders to optimize on their holdings to meet their leverage, tax, capital, and liquidity needs and also to differentiate between the tool used for trading and how they want to hold their exposure. Put simply, in an EFP transaction, one party is the buyer of futures and seller of the physical share and the other party is just the opposite. It is a private transaction between the two parties involved, however, the fulfilled transaction must be reported to the Exchange.
These transactions are common in traditional trading, but this is the first time an EFP has been used with a digital currency as the underlying asset. The current expiration date of the CME Bitcoin futures is this Friday, the 27th of July. The EFP transaction might have been as a result of the investors seeing that BTC is on a rally rather than on a decline as earlier expected.
Regarding this trade, Brooks Dudley from E.D & F Man Capital Markets Inc. said:
“Every day we facilitate EFPs for our clients in physical assets such as soybeans, wheat, and treasuries. EFPs on CME Bitcoin futures mark an important step forward in the maturity of the regulated derivatives market for digital currencies.”
As crypto markets mature, it is expected that EFP trades will become more common. Since the U.S. Commodity Futures Trading Commission (CFTC) has only approved BTC futures products settled using cash, the EFP transactions may provide more flexibility to Wall Street and other institutional investors.