- The Chicago Mercantile Exchange (CME) has released new details on its Bitcoin options contracts.
- Meanwhile, this raises the question of whether the Bitcoin option contracts will lead to an increase in the volatility of Bitcoin (BTC).
The Chicago Mercantile Exchange (CME) has released new details on its Bitcoin option contracts yesterday. Back on 12 November 2019, the CME Group announced that it will offer options on its Bitcoin futures contracts from 13 January 2020, while awaiting regulatory review.
According to new information, the contract size will be one Bitcoin (BTC). The contracts will be offered on a monthly basis with initial contracts scheduled for January 2020 to June 2020, December 2020 and December 2021.
— I am Nomad (@IamNomad) December 2, 2019
Race between CME and Bakkt
While the launch of the CME Bitcoin futures options are a few days away, Bakkt, the Bitcoin exchange operated by the Intercontinental Exchange (ICE), is preparing to launch its Bitcoin futures options for next week, 7 December. This was confirmed by Kelly Loeffler, CEO of Bakkt, at the end of October.
With the announcement, Bakkt had virtually triggered an race with the CME. It seems that both companies see great potential in their trading operations with Bitcoin (BTC). The question is how the Bitcoin options from Bakkt and the CME will affect the Bitcoin price.
On this question, it is important that Bakkt will offer its BTC futures options with a physical delivery of BTC at the end date of the contract, while the CME has announced only cash-based Bitcoin futures options.
The CME Bitcoin futures which have been on the market for two years now are suspected of manipulating the Bitcoin price. This was recently confirmed by Christopher Giancarlo, the former Chairman of the U.S. Commodity Futures Trading Commission (CFTC). He explained that the Trump administration had approved the CME futures to burst the 2017 Bitcoin bubble in a regulated environment.
Will Bitcoin’s volatility continue to increase?
The present looks somewhat different than December 2017. Since the end of June, Bitcoin has recorded a downward trend with the price falling from USD 13,000 to currently around USD 7,300. The market has generally calmed down somewhat. In particular, institutional investors currently have a much greater choice when it comes to investing in Bitcoin.
Nevertheless, the Bitcoin Futures Options could provide for a further increase in volatility in the Bitcoin market. This is due to the nature of option contacts. While futures contracts require the holder to sell on the expiration date, Bitcoin option contracts do not require the holder to sell on expiration. This leads to more flexibility for investors. However, this could also increase the volatility of the market.
In recent months, the last Friday of the month was an important date for BTC investors as the Bitcoin futures on the CME expired on that day. The new Bitcoin options on the CME could make this “fixed” date more variable. Information on early orders could determine how backseat investors decide to enter positions.
The influence that the CME Bitcoin futures might have was shown yesterday by Skew Markets in a tweet on Deribit’s Bitcoin options. In the chart the analysis company shows the chronological course of the Open Interest in the last year. Ironically, Skew Markets asks its followers if they can say what the “quarterly, monthly and weekly expiry dates are”.
➡️ Deribit Bitcoin options open interest over the last year in bitcoin terms
Can you tell which are the quarterly, monthly and weekly expiries?
Interesting to note the market grew during Q1 this year – prior to the rally in spot pic.twitter.com/g2lcQFoGGV
— skew (@skewdotcom) December 2, 2019
Given the new Bitcoin options and the recent trend towards crypto derivatives, the underlying price sentiment in the crypto market is currently difficult to predict. The Bitcoin price is currently in the grip of bulls and bears.
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