The Asian financial market will express a high demand for CME Group’s future Bitcoin options product, stated CME’s global head of equity index and alternative investment products Tim McCourt in an interview with South China Morning Post. The Chicago Mercantile Exchange Group successfully launched a Bitcoin futures exchange in December 2017 and expects that the new options exchange product will be equally popular.
In the interview, McCourt stated that the Asian and European markets account for 50% of trading volume on their Bitcoin futures platform. Additionally, the new platform will allow investors to manage how they gain exposure to Bitcoin and will deal better with financial risks.
He explained that while futures provide a one-for-one exposure, in the sense that Bitcoin’s price movement is equal to a certain value per contract, options give traders the ability to choose different strike-price levels, that can provide either downside protection or upside exposure at only a fragment of the asset’s price.
The nature of options trading delivers a critical difference compared to futures contracts, as options grant the ability to investors to purchase or sell a certain asset at a ‘strike price’, which is regulated before or after the option contract’s expiration date.
Miners could benefit from the options platform as they could potentially protect themselves from financial risk by hedging the cost of cryptocurrency mining. McCourt explains that Chinese miners already hedge the costs of their production with Bitcoin futures contracts when spot markets become extremely volatile.
As a reminder, the CME Group publicly announced the launch of their options platform in September, stating that the product is set to launch during Q1 2020. However, the exchange platform did not receive regulatory approval at the time of writing, which is exceptionally important for the CME Group as the product cannot launch without it.
Will CME’s options push Bitcoin lower?
The CME Group and the Intercontinental Exchange (ICE) are some of the first financial market companies to introduce regulated exchanges for cryptocurrencies. While their product launches historically had a negative effect on the sector’s value, a significant part of the crypto community believes that regulated exchanges can bring institutional money.
As ICE’s launch of Bakkt, a bitcoin futures trading platform, resulted in a 20% price reduction for Bitcoin only days after the exchange appeared online, it is still uncertain whether CME’s options product will have a positive or negative effect on the market.
Nevertheless, market analysts believe that despite the lack of an initially great trading volume, regulated exchanges will over time reach remarkable levels of adoption. Since its inception, 35,000 Bitcoins were traded each day on average on CME’s Bitcoin futures product.