CME Group launches bitcoin options contracts

CME Group, one of the first regulated institutions to offer bitcoin futures, launched bitcoin options contracts today.

Options are a type of derivative that allows the holder to either buy or sell an asset at a set price on a specific date, but does not require them to do so.

The launch comes a month after Bakkt, a subsidiary of Intercontinental Exchange, launched its bitcoin options and cash-settled futures contracts. And just days after the leading cryptocurrency exchange Binance-backed FTX exchange announced the launch of its own options product via Twitter—but that’s not available to U.S. investors. 

CME’s Bitcoin options contract (ticker symbol BTC) is cash-settled in U.S. dollars. Each contract—representing five bitcoins—is cleared centrally to avoid counterparty risk. CME aggregates data from several large bitcoin exchanges to track bitcoin’s price. 

The CME Group, which operates the Chicago Mercantile Exchange, among others, said on its website that the launch was in “response to growing interest in cryptocurrencies and customer demand for tools to manage bitcoin exposure.” 

There may be some truth to that. On Friday, Bloomberg reported that a JPMorgan analyst believed the increase in activity in CME’s underlying futures contracts at the end of last week signaled “high anticipation among market participants of the option contract.”

Bitcoin derivatives have been available for more than five years, but mainly on unregulated exchanges like Seychelles-based BitMEX. CME and CBOE were two of the first to offer regulated products when they both launched cash-settled bitcoin futures in December 2017. 

This was around the time that bitcoin reached an all time peak of near $20,000, and many thought the regulated products would bring a flood of institutional investors into the market, pushing the price of bitcoin ever higher. The “crypto winter” crash ended that. 

Since then, the introduction of new bitcoin derivative products has been a roll of the dice. For instance, Bakkt’s highly touted physically settled bitcoin futures exchange, which launched in September, turned out to be a giant dud on its first day of trading.  

The CBOE pulled the plug on its bitcoin derivatives products amid slumping volumes in March 2019. Meanwhile, CME Group has seen consistent demand, suggesting that it may not be the contract, so much as the market.