CME Group launches "Bitcoin Options" on the first day: Bitcoin price hits 2 month high

In any case, the actual situation confirms the previous prediction of JP Morgan strategist Nikolaos Panigirtzoglou: institutional investors are eager to try CME's options trading. This is a good start for the cryptocurrency market in 2020.

Author: Jiang Xiaoyu

Source: Carbon Chain Value

On Monday at 11 pm Beijing time, the Chicago Mercantile Exchange (CME) officially launched Bitcoin options trading. On the first day of launch, its trading volume beat rival Bakkt, a subsidiary of the NYSE parent company.

According to a CME spokesperson, the CME platform traded 55 options on the first day of Bitcoin options. The contracts are denominated in U.S. dollars, and each contract represents 5 Bitcoins, so the first day's transaction value is about 275 BTC or 2.1 million US dollars. Since Bakkt launched bitcoin options trading on December 9, last year, its current average daily trading volume is about slightly more than $ 1 million, less than half of CME's first day trading volume.

At the same time, the price of bitcoin soared 5.5% today and once rose to $ 8,570, a two-month high. CME Group's listing of Bitcoin options has clearly brought good sentiment to the industry and opened up a new path for institutional investors to enter the market, which deserves our attention.

01

Why is CME able to beat Bakkt?

Why is CME able to beat Bakkt? Because they are playing well.

Since 2014, Bitcoin derivatives have appeared on different platforms, but most of these platforms are some "civilian platforms" that have not been officially recognized and regulated. As a regular army, CME is one of the first platforms to offer regulated Bitcoin financial products to investors.

In December 2017, CME launched Bitcoin futures settled in cash, and within a few days Bitcoin rushed to $ 200 million. Until now, it has been the pinnacle of Bitcoin price.

In the following years, CME Group has been the most influential trading venue for cryptocurrencies, and has always dominated the market in Bitcoin futures trading. In contrast, another exchange, CBOE, which also launched a regulated Bitcoin futures contract, had to shut down this trading service in March 2019 due to the bleak volume of Bitcoin options trading. As a result, CME's position in the regulated Bitcoin futures market is stronger.

Even though Bakkt is ahead of CME and launched a Bitcoin option service on December 9, 2019, the exchange's holdings and trading volume are very small and it is difficult to have a large impact on the market. In addition, Bakkt failed to catch the rising tide of currency prices. After it launched the options business, Bitcoin dropped from $ 7,600 to $ 6433, which failed to meet the high expectations of the industry before, and therefore gradually disappeared from the public opinion.

In comparison, the introduction of CME Bitcoin options has a much greater impact on the entire cryptocurrency market.

02

What is the difference between options contracts and futures contracts?

The following are popular science content. If you feel that it is taking too much time, you can skip to the last two paragraphs of this section to see the conclusion.

A futures contract is an agreement where the buyer agrees to buy a certain asset at a specific price after a specified period of time, and the seller agrees to sell a certain asset at a specific price after a specified period of time. Through the futures contract, the buyer and the seller can lock the asset price one week, one month or even one year in advance. When the physical price is higher than the agreed price, the buyer makes a profit and the seller loses; and if the physical price is lower than the agreed price, The seller makes a profit and the buyer loses.

In futures trading, any trader must pay a security deposit based on a certain percentage (usually 5-10%) of the value of the futures contract that he buys and sells as a financial guarantee for the performance of the futures contract before he can participate in the purchase and sale of futures contracts, and the price Changes determine whether additional funding is required. When the investor's margin is insufficient and lower than the required ratio, the futures company will forcibly close the position. Sometimes if the market is extremely extreme, there may even be a liquidation of the account, and even the futures company needs to advance the loss in excess of the account margin.

For the above content, I believe that readers who have played the Bitcoin contract (especially those who have been out of stock) must be very familiar. So, what is the difference between CME's new options trading and futures?

The so-called option contract refers to the option buyer, after paying a certain amount of premium to the option seller, the right to buy or sell the relevant commodity futures contract at a predetermined price within a specified period. (So ​​if the futures trading of an exchange is prosperous, its options trading is also easier to carry out.) If the situation is contrary to the buyer's expectations, so that the buyer will lose if the exercise, then the buyer can give up exercising this right. At this point, the buyer is losing money on the funds paid to buy the option.

Unlike futures trading, the option seller does not necessarily own the underlying assets, he can "naked short". Option buyers don't necessarily want to buy the underlying assets. Therefore, when the option expires, the two parties may not necessarily make physical delivery of the subject matter, but only need to make up the price based on the spread.

In other words, with bitcoin options, if you want to go long or short bitcoin, you don't have to hold it directly like playing futures. You no longer need to deposit Bitcoin margin into your "contract account", let alone worry about being liquidated. If you want to be long bitcoin, you can buy "call options"; if you want to short bitcoin, you can buy "put options". When the loss caused by exercise is far greater than the exercise, you can completely give up the exercise and lose the price of the option contract.

The introduction of bitcoin options products expands the range of investment options, allowing investors to configure investment strategies more flexibly, and is also conducive to the stability of the bitcoin spot market. (It will reflect market expectations more fully in current prices and make price fluctuations smoother.) All in all, this is good for institutional investors.

03

Bitcoin derivatives growing: institutional investors ready to enter?

All the information points to the fact that institutional investors have ignited their interest in the cryptocurrency market.

On Tuesday, the CEO of Double Line Capital, the "New Debt King" of the United States, said in a webcast that the correlation between the US dollar and the US double deficit (current account and budget deficit) indicates that the dollar will depreciate. He said: "As foreigners start to withdraw from the United States, I think this will be the theme for the next few years. Perhaps starting this year, you will see a sharp depreciation of the U.S. dollar." From this, Gundlach also predicted the price of Bitcoin this year. The maximum may rise to $ 15,000, although he does not own any digital currency.

The loose monetary policies of various countries and the high degree of uncertainty in the international political situation have made Bitcoin an investment target worthy of being included in the asset portfolio. During the US-Iraq crisis in January, Bitcoin exploded by 25% within 6 days, leaving a deep impression.

At present, the main reasons hindering institutional investors from investing in the market are: one is the high degree of manipulation of the price of Bitcoin, and the other is the high price fluctuation. In order to reduce investment risks, institutional investors undoubtedly need good hedging tools, so a booming Bitcoin derivatives market is indispensable.

Fortunately, cryptocurrency practitioners have not stopped aggressive. In 2019, bitcoin options products started strong growth. According to data from analysis firm Skew, the daily trading volume of bitcoin options exceeded $ 90 million last Friday. Deribit, an exchange based in the Netherlands, can be described as one of the "Pearls", and more than 95% of Bitcoin options transactions last year occurred in it. The exchange is currently valued at billions of dollars.

Now, as Bakkt and CME successively launch regulated bitcoin options products, the bitcoin derivative market will become increasingly regular, providing ample investment tool libraries for institutional investors interested in this cryptocurrency market.

In a recent interview with cryptocurrency research company Global Coin Research, Zhao Changpeng said that he has seen increasing interest from institutional participants and that the crypto market will also become more bullish in 2020.

In any case, the actual situation confirms the previous prediction of JP Morgan strategist Nikolaos Panigirtzoglou: institutional investors are eager to try CME's options trading. This is a good start for the cryptocurrency market in 2020.