What’s the Effect of CME Launching Bitcoin Options on BTC & Altcoins?
- Amidst the high anticipation for the product, CME has launched its Bitcoin options that are now open for trading
- Binance-backed FTX also launched options on bitcoin and traded $1 million within the first two hours
- “There's been high anticipation for institutional adoption of Bitcoin for a very long time,” – Bloomberg
Options on CME’s Bitcoin futures contracts has been launched today. Each of these contracts represents five BTC. Quoted in US dollars, these contracts are cleared centrally to avoid counterparty risk.
These options are introduced in response to “growing interest” in digital currencies and customer demand for tools to manage BTC exposure. As CME states, “CME options on Bitcoin futures (BTC) are now trading.”
— CMEGroup (@CMEGroup) January 13, 2020
To track BTC price, CME relies on data from multiple top bitcoin exchanges. Currently, BTC/USD is trading at $8,096 with 24 hours loss of 0.38% while managing the daily trading of $497 million on top ten exchanges with real volume, as per Messari.
As the first mover, when CME launched bitcoin futures in December 2017, BTC price topped around $20,000. Bakkt’s launch also saw BTC price dragging but this time there isn’t notable movement in BTC price.
Unlike other exchanges, CME is a regulated platform to trade cash-settled bitcoin futures, just like Bakkt. ICE’s Bakkt launched options last month.
Before this launch, CME recorded strong activity, noted analytics firm Skew.
Most active week in three months at the CME ahead of the options launch this Monday – looking strong! pic.twitter.com/k4tjN1BkNc
— skew (@skewdotcom) January 11, 2020
Open interest on CME Bitcoin futures has also jumped in the excitement of options launch.
While good for BTC, this might not be positive for altcoins as trader Ceteris Paribus notes, “the more we see products like this get offered the more bearish it is for the majority of alts.”
“99% of alts are basically quasi-derivatives of Bitcoin. Now we're getting actual derivatives to trade. Majority of alt volume was just seen as beta within crypto… now there will be easier, more liquid ways to get that,” added Paribus.
“High Anticipation” of Bitcoin Options
Speaking about the “high anticipation” of Bitcoin options launch on the CME, Bloomberg’s Sonali Basak who has ”very heavily” covered BTC said, “There's been high anticipation for institutional adoption of Bitcoin for a very long time.”
Although futures and options markets are opening up, Basak said, some of the fundamental concerns for big institutional investors in the form of regulatory risk and how to treat BTC are still problems.
Reflecting on JPMorgan Chase’s report from Jan. 10 that claims that institutional interest in Bitcoin-related contracts is building but the digital assets’ intrinsic value is still below its market value, she said, “on one hand there's a lot of institutional interest but on the other hand there's a lot of risks still there.”
But the “Bloomberg Daybreak: Americas,” host points out it’s exactly the way investment banks treated, to which Basak says,
“Let's be honest investment banks love risk and so they wanna love it (..)They want to love it and they are aware that it's there but there's a lot of risks Bitcoin does pose to existing business models.”
Kicking off 2020
However, CME wasn't the only one that launched options, Binance-backed FTX also launched options on bitcoin. The exchange also recorded strong activity, within the first two hours it saw $1 million in trading activity.
As for the current Bitcoin futures options volume, the picture somewhat looks like this,
Bitcoin options are having a good start of 2020. Just last week, daily volumes climbed to $90 million.
Among these exchanges that have options on bitcoin, Deribit exchange accounts for 95% of all trading activity last year. But last week, the Dutch-based exchange moved its operations to Panama citing regulatory concerns.