September 30, 2022

The owners of one of the world’s largest derivatives exchanges have announced that they will offer two new cryptocurrency-based futures products.

CME Group Inc. plans to introduce euro-denominated Bitcoin and Ethereum futures on August 29, pending regulatory review, the company announced in Press release. These latest futures will be sized at five Bitcoins and 50 Ethers per contract. Each will be settled in cash using the daily CME CF Bitcoin-Euro Reference Rate and CME CF Ether-Euro Reference Rate, respectively.

“Euro-denominated cryptocurrencies are the second highest fiat currency after the US dollar,” said Tim McCourt, CME’s global head of equities and foreign exchange products. “Year-to-date, the EMEA region accounts for 28% of all Bitcoin and Ether futures traded, up more than 5% compared to 2021.”

Drawing from uncertainty

The products come as crypto markets continue to struggle, with Bitcoin down about 50% so far this year and Ethereum down 56%. This prolonged state of volatility is perhaps what has attracted investors to cryptocurrency futures, which allow investors to hedge their cash positions in digital currency.

“Continued uncertainty in cryptocurrency markets, along with strong growth and deep liquidity in existing Bitcoin and Ether futures contracts, is creating increased demand for risk management solutions from non-US institutional investors,” explained McCourt.

However, current trading volumes in the cryptocurrency derivatives market are less than those of spot trading. This could potentially contribute to a lot of market volatility, as futures contracts can amplify the volatility of a given market climate. For example, when Bitcoin plummeted as much as 30% in May 2021, leveraged positions in futures and options were liquidated, which then fueled the selloff.

The world’s largest financial derivatives exchange launched micro-options on Bitcoin and Ethereum earlier this year. CME Group said the contracts will represent one-tenth of each cryptocurrency and will be open not only to institutional but also to retail traders, for whom the instruments were designed.

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