The Chicago Mercantile Exchange (CME) Group expects to see high demand in Asia for its forthcoming Bitcoin (BTC) options product.
Tim McCourt, CME Group’s global head of equity index and alternative investment products, told news outlet South China Morning Post on Oct. 10 that the new crypto derivative product is expected to prove as popular as the exchange’s existing BTC futures.
Miners will be able to hedge their costs
According to the report, as much as half of the volume for CME’s current BTC futures is accounted for by Asian and European traders. McCourt told reporters that the forthcoming options product would allow market participants to be more precise in how they gain exposure to Bitcoin and manage its price risks:
“While futures give you a one-for-one exposure, whereby the movement of the underlying bitcoin translates directly to a specific dollar value per contract, an option gives you varying strike-price levels and can give you either downside protection, or upside exposure at a fraction of the underlying price.”
As distinct from futures, options contracts allow traders to purchase a right to buy (a call option) or sell (a put option) a given asset at a specified “strike price” determined on or before the contract’s expiration date.
McCourt noted that options would likely enable Bitcoin miners to more accurately hedge the costs of their production. He also pointed to how the current trading of Bitcoin futures contracts among China-based miners has offered them a hedge during volatile times on spot markets.
CME’s evolving Bitcoin derivatives market
CME Group announced its Bitcoin options plan in September, revealing its intent to launch the product in the first quarter of 2020, pending regulatory review.
Year to date, 7,000 CME Bitcoin futures contracts — equivalent to roughly 35,000 BTC — were reportedly traded on average each day.
On May 13, a record daily volume of 33,677 contracts — equivalent to over 168,000 BTC — was traded on the exchange.
This fall, industry commentators have closely eyed what many perceive to be the sluggish uptake of Bakkt’s newly-launched Bitcoin futures contracts — the first of their kind to be physically settled in Bitcoin — which went live on Sept. 22.