Key Takeaways
- • Bitcoin futures trading launched on two major U.S. exchanges in mid-December 2017: CFE (XBT futures) commenced December 11, and CME (BTC futures) commenced December 18, marking the first regulated futures market for bitcoin in the United States.
- • CME and CFE employ different pricing methodologies: CME uses its proprietary Bitcoin Reference Rate (BRR) aggregating data from multiple spot exchanges, while CFE relies on daily auction prices from Gemini, the Winklevoss twins' virtual currency exchange.
- • Both futures contracts are cash-settled instruments, eliminating the need for physical bitcoin delivery and reducing operational complexity for institutional participants.
- • The CFTC formalized its regulatory stance on virtual currencies by self-certifying the futures contracts (December 1) and subsequently publishing a dedicated virtual currency resource webpage (December 12), signaling regulatory clarity for institutional market participants.
- • Bitcoin futures availability addresses previous SEC concerns regarding cryptocurrency investment fund structures and creates a regulated framework for registered CPOs (Commodity Pool Operators) and CTAs (Commodity Trading Advisers) to gain bitcoin exposure.
Summary
The launch of bitcoin futures trading on two major Chicago exchanges in December 2017 represents a significant institutional milestone for cryptocurrency market maturation. The Chicago Board Options Exchange (CBOE) Futures Exchange commenced XBT futures trading on December 11, 2017, followed one week later by the Chicago Mercantile Exchange (CME), which launched BTC futures on December 18, 2017. Both exchanges received CFTC self-certification on December 1, 2017, establishing a regulated framework for futures trading that did not previously exist.
The two exchanges have structured their respective products with distinct specifications and pricing methodologies. The CME employs a proprietary Bitcoin Reference Rate (BRR) that aggregates trading data from multiple major bitcoin spot exchanges to derive a daily U.S. dollar settlement price. In contrast, the CFE relies on the daily auction price from Gemini, a virtual currency exchange operated by Cameron and Tyler Winklevoss, who have maintained prominent positions in bitcoin markets. Both contracts are structured as cash-settled instruments, eliminating the operational burden of physical bitcoin delivery and making the products more accessible to institutional traders and fund managers.
The regulatory environment surrounding these launches reflects increasing mainstream acceptance of cryptocurrency instruments. Concurrent developments supporting this trend include the CFTC's publication of a dedicated virtual currency resource webpage on December 12, 2017, positioning itself as a central authority for Commission-produced guidance on virtual currencies. These regulatory developments followed PricewaterhouseCoopers' November 30 announcement that it would accept bitcoin as payment for services, further signaling institutional adoption.
For registered CPOs and CTAs, the availability of regulated futures contracts addresses previous concerns raised by the SEC regarding cryptocurrency fund structures. The self-certified futures products provide a regulated derivative mechanism for funds seeking bitcoin exposure without navigating unregulated spot market infrastructure, clarifying compliance pathways for alternative investment managers seeking to incorporate digital assets into their strategies.
The two exchanges have structured their respective products with distinct specifications and pricing methodologies. The CME employs a proprietary Bitcoin Reference Rate (BRR) that aggregates trading data from multiple major bitcoin spot exchanges to derive a daily U.S. dollar settlement price. In contrast, the CFE relies on the daily auction price from Gemini, a virtual currency exchange operated by Cameron and Tyler Winklevoss, who have maintained prominent positions in bitcoin markets. Both contracts are structured as cash-settled instruments, eliminating the operational burden of physical bitcoin delivery and making the products more accessible to institutional traders and fund managers.
The regulatory environment surrounding these launches reflects increasing mainstream acceptance of cryptocurrency instruments. Concurrent developments supporting this trend include the CFTC's publication of a dedicated virtual currency resource webpage on December 12, 2017, positioning itself as a central authority for Commission-produced guidance on virtual currencies. These regulatory developments followed PricewaterhouseCoopers' November 30 announcement that it would accept bitcoin as payment for services, further signaling institutional adoption.
For registered CPOs and CTAs, the availability of regulated futures contracts addresses previous concerns raised by the SEC regarding cryptocurrency fund structures. The self-certified futures products provide a regulated derivative mechanism for funds seeking bitcoin exposure without navigating unregulated spot market infrastructure, clarifying compliance pathways for alternative investment managers seeking to incorporate digital assets into their strategies.
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