- Bakkt and the Intercontinental Exchange have announced the launch of Bitcoin option contracts.
- While no official launch date has yet been announced, Bakkt appears to want to compete with the CME and is targeting the launch before the first quarter of 2020.
The Intercontinental Exchange, the operator of the New York Stock Exchange, plans to launch another Bitcoin derivative product after the launch of the physically backed Bitcoin futures on the Bitcoin exchange Bakkt, as The Block reported citing several sources.
According to the available information, Bakkt intends to launch options on Bitcoin. This puts Bakkt in direct competition with the Chicago Mercantile Exchange (CME), which recently announced the introduction of Bitcoin options in the first quarter of early 2020, subject to approval by the U.S. authorities.
Race for first Bitcoin options
It appears that Bakkt intends to beat its competitor CME and achieve the introduction of BTC options before the first quarter of 2020. However, Bakkt would not be the first exchange to offer BTC options. In Europe, the Amsterdam-based broker Deribit already sells Bitcoin options. However, Deribit does not enjoy the reputation of the CME or the Intercontinental Exchange worldwide.
Tim McCourt, CME’s Director of Alternative Investment Products, said in an interview with the South China Morning Post that the company expects high demand from Asian traders and miners for Bitcoin options. He cited the immense benefits of using the hedging mechanisms of option contracts as the reason. Since around 70-75 percent of Bitcoin mining takes place in Asia, the focus could be on Asian countries, McCourt said.
Options give the buyer the right to buy (call option) or sell (put option) a certain amount of the underlying asset at a fixed price during a defined period before expiry. Accordingly, options can be used for hedging or speculation as well.
Call options can generally be understood as a leverage bet to benefit from rising prices, while put options are used to benefit from price losses. This means that options typically cost a fraction of the underlying (Bitcoin). Options give buyers the right to a call or put option, but this is not an obligation. The broker can remunerate this option by an option premium at the beginning of the contract period.
Several hedge fund managers have already spoken out in favour of Bitcoin options in the past. The unanimous opinion is that they would contribute to better risk management for large investors. In addition, options would be an entirely new functionality in the market, which is another positive signal from recent days for the cryptocurrency market.
While the launch of the Bakkt Bitcoin futures was very disappointing, the trading volume increased steadily over the last few days. As CNF reported the day before yesterday, Bakkt recorded a new all-time high of 224 Bitcoin contracts. It was also announced that the CME was considering the introduction of Ethereum Futures contracts after CME Chairman called Ether an “commodity”.
✔️ Buy 15 cryptocurrencies
**= Risk warning: 75% of retail CFD accounts lose money when trading CFDs from this provider.