Bitcoin Gets Institutionalized

Bitcoin futures are arriving on major U.S. exchanges, giving institutional investors regulated routes into the cryptocurrency craze.



Starting this week, investors are able to trade Bitcoin futures on the Cboe Futures Exchange.

The Chicago-based options exchange launched the new futures contracts late Sunday afternoon, in time for the start of global trading hours. The contracts are based on the auction price for Bitcoin given by the Gemini Trust Company, the digital asset exchange founded by Tyler and Cameron Winklevoss.

“Given the unprecedented interest in Bitcoin, it’s vital we provide clients the trading tools to help them express their views and hedge their exposure,” said Ed Tilly, Cboe Global Markets chairman and chief executive, in a statement ahead of the launch.

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The Cboe isn’t the only exchange getting in on the cryptocurrency craze: Next Monday, CME Group will launch its own Bitcoin futures, based on its Bitcoin Reference Rate, a once-a-day measure of the U.S. dollar price of Bitcoin calculated with digital asset exchange Crypto Facilities. “Bitcoin is a new, uncharted market that will continue to evolve,” said Terry Duffy, CME Group chairman and chief executive, in a statement earlier this month.

The CME Group’s Bitcoin contracts will be subject to a “variety of risk management tools” to regulate trading of the volatile cryptocurrency, he added, including an initial margin of 35 percent as well as position and intraday price limits.

Nasdaq is also reportedly planning to launch a Bitcoin futures contract in 2018, according to Reuters.

Previously a fringe asset class, cryptocurrencies surged into the mainstream in 2017 as the price of Bitcoin climbed rapidly. The digital currency was trading around $15,000 mid-day Friday after starting the year below $1,000.

But the lack of regulation and volatility associated with cryptocurrencies have made Bitcoin a tough sell for institutional investors, most of whom believe the asset is in a bubble. On Thursday, Bitcoin had its most volatile day yet, rising above $17,000 before plummeting by more than $2,000 in under four hours. During this period, prices diverged wildly across digital asset exchanges, with South Korean exchange Bithumb reporting prices above $19,000, according to Coindesk.

The introduction of futures contracts is “evidence of the financial industry’s growing acceptance of cryptocurrencies,” Daniel Bresler, an associate at financial law firm Seward & Kissel, said in a company statement Thursday. “It also increases the number of market participants that will invest in Bitcoin as certain participants were hesitant to invest without the protections given by a respected exchange,” he added.