The price of Bitcoin has risen sharply in recent weeks. One factor behind this bullish trend is CME Group’s announcement to add BTC (short for Bitcoin) to the world’s largest futures market. If you’re wondering why this news sparked such a positive reaction in the crypto community, this article explains the role of “futures” and what the CME move means.
CME Group
According to information on its own website, CME (Chicago Mercantile Exchange) Group is the world’s leading and most diverse derivatives marketplace. The company operates the largest options and futures exchange globally, with a market capitalization reported at around 46.81 billion USD (Nasdaq data consulted on November 8, 2017).
What is the futures market?
A futures contract functions like any other asset purchase, but the sale or purchase price is agreed in advance and a future date is set for the transaction to occur. For example, Juan buys 1 BTC today via a futures contract at a price of 7,400 USD. He sets the settlement date for January 21, 2018 and sells that 1 BTC at 9,221 USD. The trader does not necessarily take physical delivery of the asset; similar to contracts for difference (CFDs), the position is a bet on price movement, and settlement reflects the price agreed between the buyer and the regulated exchange.
Bitcoin in the futures market
On October 31, CME Group announced it would begin offering Bitcoin futures. The announcement stated that futures contracts for the pioneering cryptocurrency would be available before the end of 2017. The reference price for these contracts will be the BRR (Bitcoin Reference Rate). CME had already registered the BRR in 2016; it calculates the rate using data from Bitstamp, GDAX, itBit and Kraken to produce a dollar-denominated Bitcoin price average.
Why is this important?
In a strongly bullish environment like the recent Bitcoin rally, almost any major news can push the price higher. CME Group’s daily trading volume often exceeds 15 million USD, and listing Bitcoin futures on such a large, regulated exchange could bring added liquidity and greater stability to Bitcoin’s price. It also signals increasing acceptance of digital currencies within traditional financial markets, which adds legitimacy to the asset class. This announcement was a key catalyst in recent BTC price gains; this week Bitcoin reached 7,776 USD according to market data.
How will Bitcoin futures contracts work?
CME Group published the main specifications for the new Bitcoin futures contracts. Key features include:
- Contract unit: 5 bitcoins.
- Minimum tick value per contract: 5 USD per bitcoin = 25 USD per contract.
- Initial listed contract months: December 2017, January 2018, February 2018, March 2018.
- Trading termination: the last Friday of the contract month at 4:00 p.m. (UTC).
- Position limits: spot position limits set at 1,000 contracts.
More details are available on the CME site.
Where to invest in Bitcoin
If you want to invest in Bitcoin easily and securely, platforms such as eToro are commonly recommended. For more information, consult available tutorials and guides from reputable sources.
Bitcoin’s entry into mainstream financial markets continues to strengthen its standing as an investable digital asset. Growing adoption suggests that cryptocurrencies are being taken more seriously by traditional finance. The crypto market remains in a phase of rapid growth and Bitcoin’s price continues to reach new highs.
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