Since Bitcoin futures from the CME Group are to debut tomorrow, Bitcoin price is yet again on a wild ride. At the press time, Bitcoin is trading at its new all-time high price of $20089.00 according to CoinMarketCap with trading volume of over $15 billion and a market cap of over $336 billion.
After a week-long consolidation around $17000, the price of Bitcoin has surged by over $2000 and is currently showing a positive momentum just the day before the launch of the second futures contract.
Last Sunday, December 10th 2017, CBOE launched its futures contracts and in just moments after the launch, CBOE’s website was flooded with huge amount of orders causing the website halt operations for some time. Tomorrow, CME’s contracts are set to go live and while most of Bitcoin enthusiasts must have already got familiar with Bitcoin futures, let us have a quick look at some of the major differences between the Bitcoin futures contracts offered by CBOE and CME Groups.
Futures contracts offered by both exchanges are completely cash settled not allowing investors to take delivery of Bitcoin. However, the contract size offered by CBOE exchange is of one Bitcoin, while that offered by the CME Group is of five Bitcoins. This means that investors have five times more exposure on CME in comparison to CBOE.
For example, with one Bitcoin say at price $20000, CBOE’s contract will also have the notional value of $20000. Whereas the notional value of CME’s contract, comprising five Bitcoins, will be $100,000.
In addition, CBOE’s contracts will be based on the Bitcoin price derived from only one Bitcoin exchange – Gemini. While CME’s contracts will be based on the Bitcoin Reference Rate (BRR) which is a one-day reference rate of Bitcoin in U.S. Dollar based on the data available from four exchanges – Bitstamp, GDAX, itBit and Kraken.
As the result, many analysts believe that CME contract could attract more demand from institutional investors as the final settlement price is derived from four different exchanges. In this regard Matt Osborne, chief investment officer of Altegris said:
“The CME contract is based on a broader array of exchanges. So there is a possibility that the CME contract may generate more interest and more volume.”
CBOE’s contracts will offer an initial margin of 44% to the notional value. This means in case Bitcoin price is $20000, CBOE will offer an initial margin of $8800. All the CBOE contracts will be cleared through Options Clearing Corporations. CME’s contracts, in their turn, offer an initial margin of 43% of the notional value. Thus with a contract size of $100,000, the initial margin will be $43,000. All CME contracts will be cleared by the CME ClearPort.
Hence, while deciding which contract is appropriate for you it should be taken into consideration what quantity of Bitcoin you want to hedge. For odd figures like 8 or 13 Bitcoin, CBOE might be helpful, while if you want to hedge in like 50 or 100 Bitcoins, CME could be a better option.
Matt Osbrone stated that as professional investors and traders are getting more comfortable with the volatility and margin usage, volumes are likely to increase over the period of time.