CME grabbed the bitcoin option market, why did this "unbelievable land" cause giants to grab?

Source: Shallot blockchain

On Tuesday (November 12) local time, CME Group announced that it will launch Bitcoin options on January 13, 2020. According to reports, CME's implementation of Bitcoin options is to help institutions and professional traders manage bitcoin spot risk exposure and conduct bitcoin futures position hedging in a regulated trading environment. And this is another short-term plan in the current cryptocurrency trading market that clearly defines the layout of the options market.

The cryptocurrency market head exchanges have rushed to the options market

About half a month ago, Bakkt had officially announced that it would launch a regulated bitcoin option contract on December 9 this year. Bakkt officially revealed that the Bakkt bitcoin option contract will be based on the benchmark Bakkt monthly bitcoin futures contract. Represents another important step in developing this asset class for institutional investors.

Some cryptocurrency spot trading platforms, including Bitfinex and Coin Security, have also placed push option products at the top of the calendar in recent months. In the evening of yesterday (November 12th) local time, Pafine Ardoino, chief technology officer of Bitfinex and Tether, revealed in an interview that Bitfinex plans to offer options as early as the first quarter of 2020. Compliance for the perpetual swap and package of futures trading is coming soon.

In early September, the official announcement of the currency security announced the acquisition of JEX, a digital currency derivatives trading platform. JEX will join the currency security ecosystem as Binance JEX, focusing on further building the crypto asset derivatives market and providing professional services including derivative contracts, options and other derivative products to the currency security users.

Xu Kun, vice president of OK strategy, also said on social media on October 11 that the derivative market space in the traditional financial market is more than ten times that of the spot market. Like the digital currency, the future derivative space is very high, and she also revealed that OKEx's options products are currently in the process of development.

In terms of current market performance, the participation of option products is not high.

However, in the process of reviewing and observing some representative cryptocurrency option products, the author finds that although more and more head exchanges are beginning to be laid out, public opinion and media mentions of cryptocurrency option products and The heat of discussion is also rising rapidly, but these sounds do not currently seem to translate into actual “market heat”.

For example, in the early August of this year, bitcoin derivatives supplier LedgerX officially opened the bitcoin option products to all users. From the current official website data, the bid-ask spread of the product is quite obvious, and the number of orders is very limited. The resulting transaction frequency is quite low and the liquidity is very bad.

JEX, which was acquired by the currency, was almost the first choice for domestic investors and most of the global retail investors to participate in cryptocurrency options trading, but the liquidity of the exchange's main option products is also not optimistic.

For example, the monthly BTC options contract that expires at the end of this month can only have a deal in about three minutes, and the number of transactions is limited.

Then the question has come, why is the initial market segment so triggered by the giants?

In order to better answer this question, perhaps we can jump out of the young market of cryptocurrency, from the perspective of traditional financial markets.

The birth of the option can be traced back to the European and American markets in the eighteenth century. Similar to the current cryptocurrency option trading market, the option products of traditional financial markets have been mistaken for a speculative market lacking actual economic functions. After the establishment of the US Securities and Exchange Commission (SEC) in 1934, there was a lot of speculation in the options market at the time, and even proposed to the Congress to ban option transactions. In 1974, the SEC also held a public hearing. The answer was to discuss whether the option is beneficial to the economy, whether it is beneficial to the public interest, and how the listing option will affect the investment habits of the investing public. However, at this hearing, the conclusion was reached that the option is beneficial to the financial market and economic development.

However, this hearing did not completely eliminate market doubts. The questioning and debate about options continued into the 1980s. Until 1985, when the US Treasury, the CFTC, the SEC, and the Federal Reserve jointly issued a report titled "Research on the Impact of Futures and Options Trading on the Economy," the United States gradually reached a consensus on the functions of financial futures and options products. Really realized the importance of options trading for financial markets and even economic development.

The "Research on the Impact of Futures and Options Trading on the Economy" reports that financial futures and options markets can provide market functions such as risk transfer and enhanced liquidity, which will help improve economic efficiency and real capital formation. Financial futures and options trading will not reduce financial The total amount of market capital supply; the trading behavior of the futures and options markets did not increase the volatility of the spot market price; interest rate futures and options will not have a significant impact on monetary policy.

So far, the dispute over the function and role of the options market has basically ended, and the parties have unified their understanding of options. From a historical perspective, the birth and demand of options are generated spontaneously by the market in order to avoid the risk of price volatility. This demand is particularly urgent in the cryptocurrency market that has never gotten rid of the "high volatility/high risk" hat for ten years.

Since the traditional financial market has confirmed the significance of the option market itself in the hundreds of years of debate, there are predecessors open the way, then as a rising-edge cryptocurrency market, obviously should not go on to re-discuss "whether the option makes sense / Whether the option is just speculation is on the old road.

For the cryptocurrency market, the options market can provide market functions such as risk transfer and enhanced liquidity, and together with futures, become the two cornerstones of risk management. For this high-growth, high-volatility market, options are not only A strong speculative behavior can help the market to form an on-site risk management system as soon as possible.

It is precisely this kind of "missional" meaning that has led to a number of head-exchanges landing on this seemingly still unexplored "wild land".