In a news release from the CME Group, the financial market company plans to bring Bitcoin futures to its platform later this year. This assumes all regulatory reviews go through as planned. The Chicago Mercantile Exchange & Chicago Board of Trade or CME Group operates the world’s largest options and futures exchange. It owns and operates large derivatives and futures exchanges in Chicago, New York City, and exchange facilities in London, using online trading platforms. It also owns the Dow Jones stock and financial indexes, and CME Clearing Services, which provides settlement and clearing of exchange trades. The exchange-traded derivative contracts include futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, rare and precious metals, weather, and real estate. According to The Economist, the CME is the “largest financial exchange you have never heard of.”
News of Bitcoins being added to the futures market somewhat lends legitimacy to the nascent digital currency. This would undoubtedly draw attention from larger players in the market, such as institutional investors. Since more future traders are showing interest in the evolving market of cryptocurrencies, the CME Group Chairman and Chief Executive Officer, Terry Duffy, stated that, “as the world’s largest regulated FX marketplace, CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities.”
The new contract on the exchange will be cash-settled, based on the CME CF Bitcoin Reference Rate (or BRR for short.) This will serve as a once-a-day reference rate of the U.S. dollar price of Bitcoin. CME is working with a currency trading platform called Crypto Facilities. “We are excited to work with CME Group on this product and see the BRR used as the settlement mechanism of this important product,” explains Dr.Timo Schlaefer, CEO of Crypto Facilities. “The BRR has proven to reliably and transparently reflect global bitcoin-dollar trading and has become the price reference of choice for financial institutions, trading firms and data providers worldwide.”
Since Bitcoin futures will be subject to the rules of CME, many proponents warn this may taint the initial idea of cryptocurrencies being a de-centralized, non-regulated market. So although more regulation is a sign that Bitcoin has become more mainstream, it’s also a concern for some hardcore fans of digital currency. In the end, being open to regulation in the United States is better than being restricted or banned entirely such as in China, South Korea, and Russia. As some countries crack down on digital currencies, others are learning to embrace the new technology to help its people. Due to an ongoing financial crisis in Zimbabwe, individuals and business there are using Bitcoins to pay their bills. Sometimes the price of a Bitcoin is $10,000 because of a lack of fiat currency. Bitcoin is helping people in Zimbabwe and other countries survive times of economic uncertainty.
The problem with digital currencies is that no one really knows how to properly value them. Unlike stocks, Bitcoin doesn’t provide sales, earnings or dividends. In the current environment where many asset classes appear to be overvalued, it’s hard to find a good place to invest new money. Amazon shares (AMZN) jumped 13% last Friday after releasing its latest financials and beating forecasts. Revenue grew 34 percent from a year ago, in part due to the $1.3 billion in sales from Whole Foods, which Amazon bought earlier this year. Overall the stock is up 47% since the start of the year. Not bad, for a large cap giant that’s worth over $530 billion by market capitalization now. With the Dow Jones and other market indexes hitting new highs again and again, putting a small amount of money towards Bitcoin and gold may be a good way to hedge against a future downturn in the financial markets.