The second Bitcoin futures from the CME Group are to debut tomorrow and the Bitcoin price is yet again on a wild ride. At the press time, Bitcoin is trading to its new all-time high price of $20089.00 according to CoinMarketCap with over $15 billion trading volume in the past 24 hours and a market cap of over $336 billion.
After a week-long consolidation around $17000, the price of Bitcoin has surged by over $2000 and is showing a positive northward momentum just the day before the launch of the second futures contract. The euphoria has already factored-in which has been reflected in this price momentum.
Last Sunday on December 10th 2017, CBOE already launched its futures contracts and soon in just moments after the launch, CBOE’s website was flooded with huge orders causing the website to halt operations for some time. Tomorrow, CME’s contracts are set to go live and while most of you must have already got familiar with Bitcoin futures, let us have a quick look at some of the major differences between the Bitcoin futures contracts offered by CBOE and CME Groups.
Futures contracts offered by both exchanges are completely settled and won’t allow investors to take delivery of Bitcoin. However, the contract size offered by CBOE exchange is of one Bitcoin, while that offered by the CME Group is of five Bitcoins. This means that investors have five times more exposure on CME in comparison to CBOE.
For e.g.with one Bitcoin say at price $20000, CBOE’s contract will also have the notional value of $20000. Whereas the notional value of CME’s contract will be $100,000 comprising of five Bitcoins. On the other hand, CBOE’s contracts will be based on the Bitcoin price derived from only one Bitcoin exchange – Gemini. While CME’s contracts will be based on the Bitcoin Reference Rate (BRR) which is a one-day reference rate of Bitcoin in U.S. Dollar based on the data available from four exchanges – Bitstamp, GDAX, itBit and Kraken.
As a result, many analysts believe that CME contract can attract more demand from institutional investors as the final settlement price is derived from four different exchanges. Matt Osborne, chief investment officer of Altegris said “The CME contract is based on a broader array of exchanges. So there is a possibility that the CME contract may generate more interest and more volume.”
CBOE’s contracts will offer an initial margin of 44% to the notional value. This means if one Bitcoin price is $20000, CBOE will offer an initial margin of $8800. All the CBOE contracts will be cleared through Options Clearing Corporations. On the other hand, CME’s contracts offer an initial margin of 43% of the notional value. Thus with a contract size of $100,000, the initial margin will be $43,000. All CME contract will be cleared by the CME ClearPort.
Hence, while deciding which contract is right for you what is the quantity of Bitcoin you want to hedge. For odd figures like 8 or 13 Bitcoin, CBOE might be helpful to you. But if you want to hedge in big number like 50 or 100 Bitcoins, CME could be a better option.
Matt Osbrone said that as professional investors and traders get more comfortable with the volatility and margin usage, volumes will increase over the period of time.