Showing posts with label Chicago Mercantile Exchange. Show all posts
Showing posts with label Chicago Mercantile Exchange. Show all posts

November 26, 2017

Bitcoin will be safe haven during next stock market crash, Says expert

By Gareth Jenkinson - November 26, 2017 (cointelegraph.com)


As Bitcoin powered ahead to a new high for a second week in a row, some have speculated that institutional investors could seek safe haven in the virtual currency in the future. The prevailing rhetoric over the past month has been more affirming than damning of cryptocurrencies, with the likes of Ronnie Moas and Max Keiser predicting new highs in 2018. Speaking to RT, eToro analyst Mikhail Mashchenko says financial institutions could look to Bitcoin if a major financial crash hits global markets.

“The demand for Bitcoin is growing as the crypto market has become less volatile, and an increasing number of professional investors see it as insurance.”

Second-oldest bull market


The current bull market in stocks is the second-longest in history, according to Fortune, having lasted 104 months so far. The longest bull market in history ended in 2000 after an impressive 113 month run. With the current rally getting a bit long in the tooth, many on Wall Street are making contingency plans for the stock market’s inevitable turn. If Mashchenko is right, Bitcoin will have a role in some of these plans.

Shifting opinions


Mashchenko’s statements come on the back of changing sentiment in the mainstream financial sector. Last week, JP Morgan Chase announced plans to offer Bitcoin futures on the Chicago Mercantile Exchange - an important move by one of the biggest banking and financial services providers in America. Even more satisfying, this moves comes only months after Chase CEO Jamie Dimon condemned Bitcoin as a scam.

Online banking service providers and exchange operators LedgerX and Revolut are also adopting Bitcoin support. The former was recently cleared to offer Bitcoin derivatives as people look to do more than just trade the cryptocurrency.

“LedgerX launched its first long-term options for Bitcoin, with an expiration date of December 28, 2018. In the coming months, we will continue to see the ‘domestication’ of Bitcoin: the Chicago Board Options Exchange and the Chicago Mercantile Exchange are planning to launch tools based on the cryptocurrency in the near future.”

Big money


If and when a stream of institutional investors start investing large amounts of capital into cryptocurrencies, some of the stunning predictions made by Bitcoin bulls could well be realised. However, Mashchenko’s prediction was quite conservative, suggesting that Bitcoin reaching a $10,000 high by the end of 2017 would be driven by emotion rather than fundamentals:

“We could see a Bitcoin at $10,000 in a month or so. However, such a surge will be based on emotions, not on fundamental factors. So, further growth of the cryptocurrency will require something more than euphoria.”

Having hit the $8,000 mark last week, Bitcoin surged another $1,000 dollars in just a few days, breaching the $9,000 level during the Thanksgiving weekend. At press time, the price of Bitcoin sits at $9,500, just $500 below Mashcenko’s predicted level.

November 22, 2017

Not December: CME Group calls its previous BTC futures release date announcement an error

November 22, 2017 (bitnewstoday.com)


Looks like the Chicago Mercantile Exchange wants to delay the date of release of its one of the most-discussed innovative projects — a platform that will allow to use futures for Bitcoin. The possible reason of their decision to remove the announcement with the release date is that they do not want to launch a raw and insecure product. While it’s absolutely incomparable in terms of actors’ wealth and level of influence, the Bitcoin Gold team has made such a mistake and since then, people often mention the rawness of this currency quite often. CME seems to be more careful.

However, their decision to simply remove the old announcement with the December release date seems somewhat immature. Couldn’t they just update it with the new date and provide some delay reasons? Instead, according to Reuters citing the company’s spokeswoman, the original posting “was due to an error with the website”. Let us all just believe it was the website itself who wrote the date and that whole announcement, then, as no alternative explanations have been provided from any other company members. But if this is actually the case, CME really has to patent an artificial intelligence technology they apparently created by accident.

While CME postpones the date of the launch of Bitcoin futures, some rivals might potentially connect the fiat and the cryptocurrency market faster: Swiss companies already demonstrated their interest in developing BTC futures trading environments and Cboe Global Markets, too, wants to build bridges between the traditional market and the cryptocurrency market.

November 20, 2017

FUD from all sides - In defense of CME's Bitcoin Futures plan

By William Mallers - November 20, 2017 (www.coindesk.com)


William Mallers, Jr. started First American Discount Corporation with his father in 1984, eventually building it into the third-largest discount futures brokerage. He sold it in 2001 to Man Financial and then retired. 

In this opinion piece, Mallers argues CME Group's plan to offer bitcoin futures will benefit the futures trading industry and the bitcoin community alike – notwithstanding hand-wringing in both worlds about the idea.

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I'm a member of the Chicago Mercantile Exchange. I've also been a bitcoiner since 2013. So, when CME Group announced its intention to launch bitcoin futures in the coming weeks, I thought, "Great! Way to go, CME."

The first exchange to offer a futures contract on bitcoin is good news for my CME friends: more trading volume and and speculative opportunities. And it's also good for my bitcoin friends: the legitimacy and access is sure to help with adoption and higher bitcoin prices. Win-win! Right?

Well, that wasn't quite the response I got.

Instead I heard just about every negative stereotype about both futures trading and bitcoin, from both communities. Let's try to put these misperceptions to rest.


'Tulips' in 5,4,3...


First, there’s this from the futures industry’s most widely read blog, John Lothian News:

"The risk of bitcoin is in its history and the cloud surrounding its creation and early fraudulent days. Who is Satoshi? Where is he today? What happened at Mt. Gox? Is it still used to launder money? Why won't China let people trade bitcoin and what does this have to do with money laundering or capital controls?"

Good Lord. If you've been in enough arguments with bitcoin skeptics you know what's coming after the drug-dealing, money-laundering slam, right? Next up: the tulip-bulb analogy.

Sure enough, Lothian says, "I don’t want to be on the wrong side of history. But the history I am looking at is … 1636-37. That was the peak of tulipmania."

And that, my friends, is why I spent my first two years in bitcoin not sharing my passion with any non-bitcoiners. "Bitcoin? Never heard of it."

But because I have benefited from all the hard work that others have done to advance this project – hosting meetups, dispelling misinformation – and all I've done is log into my account and click "Buy," I thought I'd try to do my part.

A margin clerk's dream


Here's what I wrote to Lothian (a former employee at the futures brokerage I ran), and maybe it will help you with your bitcoin futures doubters:

"Hey John, it's Junior from your old FADC [First American Discount Corporation] days and I’ll be glad to help you understand bitcoin.

"But first – recall how you used to try to collect margin money by first asking the customer to provide a contact at his bank who could confirm that he had sufficient funds in his account and that he had initiated the wire. Why did we have you do that? Because we knew we wouldn’t get the money until the next day; his bank, while debiting his account immediately, would wait until the end of the day to wire us the money (unless he stopped the wire) and our bank wouldn’t credit us until mid-morning the next day, at the earliest.

"Now, imagine, instead of that 24-hour headache, your under-margined customer simply waved his cell phone at our FADC QR code and we got the money within 10 minutes, or at most a few hours. Bitcoin is a margin clerk's dream come true: near-instant peer-to-peer value transfer! It's easy to see why Jamie Dimon doesn’t like it, but a former margin clerk? You should be loving this technology and cheering for its adoption!                                                                                     

"I know having an asset protected by the computing power of a globally distributed network doesn't feel as secure as having armed guards protecting a bank vault, but if you get some time, there are websites that estimate the cost of amassing enough computing power to defraud the bitcoin network. This site estimates about $1 billion in electricity per day, plus over $1 billion in equipment, to counterfeit one transaction. In other words, it would be way cheaper for the Hunt brothers to corner today’s silver market than it would be for me to con an online retailer like Overstock into sending me free patio furniture. It's called a '51% attack' because I’d need to control a majority of the network hashing power to get a consensus mechanism to accept my phony accounting.

"Bernie Madoff-style cons are hard to pull off; I need years to earn my victims' trust, I have to get a reputable accounting firm to bless my forged statements, etc ... but Madoff's con was far easier than going undetected while amassing billions' worth of computing power. Plus, since new bitcoins are awarded to the miners proportionate to their computational contribution, if I did have that much computing power, I may as well amass bitcoins the honest way, right?

"That's one of the fun insights into this project: it manages to align all participants through economic incentive."

Overwhelming demand


When Terry Duffy, CME's CEO, says it's offering bitcoin futures in response to customer demand, I'm sure he’s right.

I know from writing brochures for commodity trading advisors that money managers want non-correlated assets. That's the only reason they own gold.

When the stock market tanks or a terrorist attack happens, that's when gold rallies. After 9/11, the stock market dropped over 7 percent, but gold spiked.

Bitcoin, like gold, is a perfect non-correlated asset to add to an investment portfolio. I am not surprised that there is such overwhelming demand for bitcoin futures from traders. Now, every trader is going to have the option to invest right there on their screen without having to do the onerous work of buying and securing bitcoin itself.

Risk controls


As for claims that CME futures trading will put the exchange at risk, they are overblown.

CME clearing privilege requires a large amount of capital. If a member's capital level drops below the threshold required to clear, the CME removes customer accounts and places them with a firm that has the capital to support them. Again, customers come first.

Stock index futures functioned as designed during the 1987 crash, grain futures likewise during the 1988 drought, currencies during the high volatility after the Plaza Accord. Consider this: prior to 1982, if you’d predicted where the most successful stock index contract would launch, you’d guess probably the New York Stock Exchange, right? But S&P 500 Index Futures launched at the Chicago exchanges next to the pork-belly pit, U.S. Treasury futures next to the soybean pit.

CME has done its homework on bitcoin; it's well aware of bitcoin's volatile price history and has the experience and controls in place to clear bitcoin futures.

Amazing, isn't it? The exchange that offers risk-management products should avoid bitcoin because it’s "risky?" Huh? I’ve never seen anything like bitcoin that inspires such lame arguments from its opponents.

This ain't Wall Street


Then, there's all the bitcoiners' FUD: "Here comes Wall Street to drive the price of bitcoin down, manipulate the market and ruin it for us!"

Suffice it to say, for many of the same reasons I gave above, I don’t believe that to be true.

Keep in mind that CME is not Wall Street. The Chicago exchanges have an ethos like bitcoin's: transparency, security, independence and accountability.

To all the people hand-wringing on both sides, let's just see how this plays out. I have decades of experience with the Chicago exchanges and feel reasonably certain that you all are wasting your breath and paying too much for full-page ads in print newspapers.

Let's get this thing to the moon!

Disclosure: CME Group is an investor in CoinDesk's parent company, Digital Currency Group.

Downtown Chicago image via Shutterstock.

Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

November 18, 2017

First Long-Term LedgerX Bitcoin Option Pegs Price at $10,000

By Michael del Castillo - November 18, 2017 (www.coindesk.com)


LedgerX just initiated its first long-term bitcoin futures option.

Called a Long-Term Equity Anticipation Security (LEAPS), the trade was matched by the platform this morning and is set to expire on December 28, 2018.

Under the terms of the deal, the buyer has the right to buy bitcoin at a price of $10,000 at that date, or almost a 30 percent premium on today's price.

Yet, because the buyer only makes money if the price is more than $10,000 (called the strike price), the investment can be seen as a reflection of the level of confidence that the price will reach that level by the agreed upon date.

Such long term futures options have long been seen in the industry as a much needed sign of maturity, and could in part help pave the way for even more institutional money to enter the space.

In an exclusive interview with CoinDesk, LedgerX CEO Paul Chou sought to position the milestone as just the first of many more before the cryptocurrency market can truly be considered mature.

Chou said:

"There will be, I expect, a lot more trades down the line. This is the first one, but it at least gives you the first guess from different institutional traders as to what bitcoin's dynamics will look like from now until 2018."

The trade option was listed by LedgerX late Friday night, and to Chou's surprise, two institutional investors agreed to the terms of the deal just one day later.

Under the terms, the buyer agreed to a price of $2,250.25 for the trade, meaning the seller collects that money if the price is less that $10,000 by the end of next year, and the buyer gets to purchase bitcoin at the strike price if it is higher.

Unlike a futures swap however, the buyer is not obliged to purchase the asset.

"If the price goes to zero, you don't have to pay $10,000 for it," Chou said. "But if a year from now it's at $20,000, then you can exercise your options."

Based on LedgerX's own calculations (made using the Nobel-prize winning Black-Scholes financial markets model), the startup believes there is a 25 percent chance that bitcoin will reach that level in the allotted time.

Soft launch


While this is the first LEAPS financial instrument matched by New York-based LedgerX, they've been conducting increasingly high trade volumes since their soft launch a month ago.

As reported by CoinDesk, LedgerX traded $1 million in bitcoin derivatives its first week of trading, ending Oct. 20.

Since then, the first cryptocurrency firm to be granted a derivatives clearing organization (DCO) license by the CFTC has posted a $1 million day, a $1.6 million day and on November 15, a record $2.6 million day.

Since LedgerX listed the LEAPS option at 5:30 Friday evening, Chou says they saw an additional $500,000 traded before midnight. "That's for a holiday week too," he said. "So we were shocked." He estimates the company has conducted approximately $16 million in notional bitcoin transactions to date.

While the startup's numbers seem to indicated active early interest, legacy institutions such as the Chicago Mercantile Exchange (CME Group) and the Chicago Board Options Exchange (CBOE)  have both recently revealed their own similar plans.

Though Chou hopes to maintain his first-mover advantage, he said there's no hard date to launch into full operation. Rather, his team wants to make sure the platform scales well beyond the 1 million messages it sends per day before this milestone. He says he'd be "surprised" if that takes "more than a month," concluding:

"But it might be sooner."

Crystal ball image via Shutterstock

Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.