Key Takeaways
- • CME and CBOE bitcoin futures are both cash-settled in U.S. dollars, and both were positioned to draw institutional capital that had largely stayed away from bitcoin.
- • CME's contract is 5 bitcoins and prices off the Bitcoin Reference Rate (BRR), an average of trading on itBit, Kraken, Bitstamp and GDAX between 3pm and 4pm GMT.
- • CBOE's contract is 1 bitcoin and settles through a single 4pm auction on the final settlement date, using prices from the Gemini exchange.
- • CBOE requires a 40% margin rate versus 35% at CME, and its trading halts (10% for two minutes, 20% for five minutes) are structured differently from CME's 7%, 13% and 20% circuit breakers.
- • CME's minimum tick is $5 per bitcoin ($25 per contract), while CBOE's minimum directional tick is 10 points ($10).
Summary
Unregulated bitcoin futures exchanges had existed for some time, but according to Investopedia, they failed to attract institutional investors, who largely stayed away from the cryptocurrency. The planned entry of CME and CBOE into bitcoin futures was expected to change that, giving institutions a regulated vehicle to take positions for or against bitcoin's price movements or to hedge exposure. Large trading firms and bitcoin miners were expected to be the major participants, though retail investors could also trade the product's volatility. Both exchanges' contracts settle in U.S. dollars rather than bitcoin.
The contracts differ in their pricing mechanics. CME's contract is based on the Bitcoin Reference Rate (BRR), which aggregates bitcoin trading across itBit, Kraken, Bitstamp and GDAX between 3pm and 4pm GMT. CBOE will instead determine settlement through a single auction at 4pm on the final settlement date, using bitcoin prices from the Gemini exchange, which is owned by the Winklevoss twins. The article notes that bitcoin prices have varied across exchanges because of differences in trading volume and liquidity, which makes the choice of reference price material to hedging effectiveness.
Contract size and risk controls also diverge. Each CME contract represents 5 bitcoins, while each CBOE contract represents one, so both are valued at the BRR or Gemini price at the time of trading. CME's circuit breakers are triggered at 7%, 13% and 20% price moves in either direction from the prior business day's daily settlement price, with trading halted beyond 20%. CBOE's trading halts are triggered at 10%, pausing trading for two minutes, and at 20%, pausing for five minutes. CBOE requires a 40% margin rate for bitcoin futures trades, while CME's margin rate is 35%. Minimum price increments also differ: CME's tick is $5 per bitcoin, or $25 per contract, while CBOE's minimum tick for a directional non-spread trade is 10 points, or $10. CBOE's spread tick is $0.01.
The contracts differ in their pricing mechanics. CME's contract is based on the Bitcoin Reference Rate (BRR), which aggregates bitcoin trading across itBit, Kraken, Bitstamp and GDAX between 3pm and 4pm GMT. CBOE will instead determine settlement through a single auction at 4pm on the final settlement date, using bitcoin prices from the Gemini exchange, which is owned by the Winklevoss twins. The article notes that bitcoin prices have varied across exchanges because of differences in trading volume and liquidity, which makes the choice of reference price material to hedging effectiveness.
Contract size and risk controls also diverge. Each CME contract represents 5 bitcoins, while each CBOE contract represents one, so both are valued at the BRR or Gemini price at the time of trading. CME's circuit breakers are triggered at 7%, 13% and 20% price moves in either direction from the prior business day's daily settlement price, with trading halted beyond 20%. CBOE's trading halts are triggered at 10%, pausing trading for two minutes, and at 20%, pausing for five minutes. CBOE requires a 40% margin rate for bitcoin futures trades, while CME's margin rate is 35%. Minimum price increments also differ: CME's tick is $5 per bitcoin, or $25 per contract, while CBOE's minimum tick for a directional non-spread trade is 10 points, or $10. CBOE's spread tick is $0.01.
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