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Bitcoin futures trading has started in Chicago

by marusia

Futures, as a rule, lead to a decrease in the volatility of the underlying asset. They also allow speculators to benefit from falling prices.

On December tenth, the first bitcoin futures were launched on the Chicago Board Options Exchange (CBOE). On December 18, a similar futures will be launched on the oldest commodity exchange in the world — the Chicago Mercantile Exchange (CME).

CME futures will not be the first tool that allows institutional investors to enter the crypto asset market, but it has every chance of becoming a turning point when the global financial elite recognizes bitcoin as a full-fledged asset class.

How Bitcoin Futures will Work

Let’s look at CME futures. They are more conservative and are likely to outperform CBOE contracts in terms of trading volume. Here are their main conditions:

  1. The start date of the auction is December 18.
  2. One contract consists of five bitcoins. The minimum number of contracts in one lot is five.
  3. Futures are calculated, that is, without a real supply of bitcoin.
  4. The term of circulation of one futures is one month. Expiration date (the day of the end of the futures period when final calculations are carried out) is the last Friday of the settlement month.
  5. Daily volatility limits are provided: seven or 13% — suspension for two minutes; 20% — trading stops completely.

The documentation says that the exchange recommends placing no more than a thousand contracts per month, which will amount to no more than five thousand bitcoins or 0.036% of the number of traded bitcoins in circulation according to the calculations of the exchange.

How will the price of bitcoin be determined

To determine the exchange rate, a specially created CME CF Bitcoin Reference Rate index or simply BRR will be used. The index is a weighted average value of the bitcoin trading price for the previous day on four exchanges: Bitstamp, GDAX, itBit and Kraken. Bitfinex and OKCoin have not yet been allowed due to restrictions on the withdrawal of fiat funds.

The BRR index reflects the price of bitcoin with a significant delay (up to one day) and does not work on weekends.

Therefore, along with this index, CME also came up with the Bitcoin Real Time Index (BRTI), which is updated at least every minute.

The difference between them can be significant: for example, at the time of writing this note, the difference between BRR and BRTI was almost $740.

It is not yet clear how BRTI will be used, but it is convenient to use as an objective rate in contracts where payment in bitcoins is provided. Instead of “in rubles at the exchange rate of the Central Bank on the day of payment”, you can write “in bitcoins at the BRTI rate at the time of the transaction”.

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