Since the CME and Cboe launched their bitcoin futures contracts in December 2017, a whole lot of institutional investors have been scampering to get on the scene. Although the CME and Cboe bitcoin futures contracts are cash settled, a London-based crypto exchange is looking to create its physically settled bitcoin futures contracts.
The Real Thing
CoinfloorEX has been in the cryptocurrency trading industry since 2013. The London, UK-based firm has made its ambition to venture into the bitcoin futures ecosystem known to the public. On March 14, the reputable exchange told Reuters that preparation was in top gear to establish its physically delivered bitcoin futures contracts in April.
The exchange focuses primarily on servicing institutional investors, hedge funds, and high-profile retail investors.
Co-founder of CoinfloorEX, Mark Lamb, told Reuters at the Futures Industry Association event in Florida, U.S. that its clients have been demanding for the real thing – a bitcoin futures contract that is settled by the cryptocurrency itself, not cash. Therefore the exchange had no choice but to satisfy the yearnings of the liquidity providers. In his words:
“When you talk to the liquidity providers, they all say the same thing, which is they want a physically delivered futures contract so they can hedge their exposure across exchanges.”
For now, all of the existing bitcoin futures contracts use cash to settle the contracts. However, experts and big investors have expressed fears saying that this method does not offer 100 percent transparency in the transactions as “bad actors can manipulate the process and change the price of the indexes on spot exchanges that set the futures prices to their advantage.”
While liquidity providers and institutional investors are busy asking for more, their demand does not erase the controversy that still surrounds the concept of bitcoin futures trading.
The U.S. Commodity Futures Trading Commission has declared it would work on a “heightened review process” for new entrants into the futures ecosystem, in a bid to ensure consumers are protected from fraudulent practices and possible manipulations in the futures and options markets.
Before the launch of the first bitcoin futures contract in December, many analysts, including the head of business development at BitMex Exchange, predicted that the price of bitcoin could rise to $50,000 in the mid-term, after a successful launch of the CME and CBOE bitcoin futures contracts.
However, with the present state of the crypto markets, it seems that prediction will not come to pass anytime soon. Since January the blockchain-money ecosystem has not ceased losing most of the weight gained in 2017. In February, the price of bitcoin slumped to $6,000 before recovering and hitting the $11,000 price region. The bears seem to have regained strength again as the price of bitcoin is just trying to remain above $8,000 at press time.