Cme group self-certified bitcoin futures to launch dec. 18

Bitcoin is a cryptocurrency, a digital asset designed to work as a medium of exchange using cryptography to secure the transaction and verify the transfer of assets with no need for a bank or other middleman.


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It is one of many new virtual currencies. Other startups have attempted to launch various platforms as exchanges or ways to utilize Bitcoin and similar virtual currencies.


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The SEC, CFTC, and other regulators in the United States and around the world are taking an active role in regulating Bitcoin and other cryptocurrencies and bringing enforcement actions when necessary. Coinflip operated a trading platform with put and call options for Bitcoins in but did not follow regulations under the Commodity Exchange Act. Coinflip agreed to a settlement with the CFTC. It was not subject to a fine but was required to cease and desist from violating the act as well as subject to additional undertakings. As part of its order, the CFTC for the first time found that Bitcoin and other virtual currencies are properly defined as commodities.

Know that folks also were skeptical when paper money displaced gold. Such secrecy may not last. The case is U. Coinbase , , U. Over the next few months, it is likely that we will see the launch of a number of other investment products based on, and trading platforms for, cryptocurrencies, as investors in Canada and globally try to benefit from this new asset class. Please contact us if you need assistance with this disclosure and developing policies and procedures to minimize regulatory risk.

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If you have any questions about digital currencies or derivatives on digital currencies and whether you may trade in such instruments, please contact one of the authors of this alert or any member of the BLG Derivatives Group. The team is experienced in negotiating derivatives documentation with sell-side and buy-side market participants around the world. Our clients include financial institutions, investment dealers, futures commission merchants, market intermediaries, securitization conduits and a wide variety of derivative end-users, such as mutual funds, hedge funds, pension funds, other investment vehicles, commodity producers, real estate firms, insurance companies, risk management firms and other corporate end-users.

CME to Offer Bitcoin Futures Contract on December 18 - MarketPulseMarketPulse

Our advice covers derivative structuring and document negotiation, regulatory compliance, tri-party collateral control practices and close-out issues. We also advise on compliance and registration requirements relating to derivatives in Canada. As depicted in Figure 1 below, the CME has captured a gradually increasing share of trading in futures contracts, from 17 percent in December to 56 percent in December The figure shows the number of futures contracts traded on the two exchanges.

Bitcoin Explained: Is Bitcoin the Next Big Thing or Hype?

As shown in Table 1, CFE has a "smaller" size futures contract unit that references one bitcoin, whereas CME has a "larger" size futures contract unit that references five bitcoins. Figure 1 may indicate a gradual increasing preference among investors for large size of bitcoin futures contracts during the last year. Figure 2 below depicts the share of bitcoins referenced by traded futures contracts on CFE and CME, adjusting for differences in contract unit size. The share traded on CME started at 51 percent in December and increased to 87 percent in December The average weekly volume was approximately for thousand bitcoins and weekly volume peaked at thousand bitcoins during the week of July 23, The two exchanges also differ in the determination of the bitcoin reference price they use for settlement purposes.

CFE's bitcoin reference price for final settlement is sourced from a single bitcoin spot exchange Gemini. London time , historically the two prices have been closely correlated, with a daily correlation of Even though trading activity in bitcoin futures has been increasing, its share is small relative to spot markets.

CME to Offer Bitcoin Futures Contract on December 18

The volume of bitcoins traded on the spot markets is substantially greater than the volume of bitcoins traded in the bitcoin futures contracts. As shown in Figure 4, bitcoins referenced by traded futures as a share of bitcoins traded on spot markets has been volatile throughout The share increased in the first half of the year, peaking in late July , and subsequently declined to a level comparable to the share in December The share of bitcoins traded through the futures markets as a percentage of bitcoins traded on spot markets may further increase if the U.

Bitcoin ETFs, if approved, would likely include bitcoin futures in their holdings. Separately, cryptocurrencies, like bitcoin, trade in the U. For example, state banking regulators oversee cryptocurrency spot exchanges through state money transfer laws. The U. In addition, the U. Internal Revenue Service IRS considers virtual currencies as property and, as a result, profitable bitcoin trades are subject to capital gains taxes. The CFTC has perhaps been one of the first regulators in issuing active guidance to investors regarding cryptocurrencies such as bitcoin.

The CFTC initially declared bitcoin a commodity in This article summarizes the key features of bitcoin futures contracts traded on CFE and CME and presents information on trading activity on both exchanges over the initial year of their existence. Each of the two exchanges captured approximately half of the bitcoin futures contracts traded leading into December — a year after their original launch — with an increasing trend of CME's relative share during the year.

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CME's trading share of referenced bitcoins may be driven by the larger contract size. Relative volume of bitcoin futures as a percentage of the bitcoin spot markets was volatile, peaking in late July , when bitcoin spot trading volume was relatively flat. Relative volume decreased in the last few months of , when bitcoin spot trading almost tripled, returning to the initial levels seen around the launch period in December CME and CFE bitcoin futures markets are young and the regulatory landscape surrounding bitcoin is still developing. These markets may thus inform and develop precedents for other cryptocurrency derivative markets and are worth following.

In addition, on March 6, , Judge Jack B. Weinstein of the U. District Court for the Eastern District of New York ruled that virtual currencies are commodities under the Commodity Exchange Act and therefore subject to the CFTC's anti-fraud and anti-manipulation enforcement authority. Commodity Futures Trading Commission v. McDonnell, No. Blockchain is a distributed digital ledger which is composed of blocks of ledger entries created and "chained" together by cryptography to provide a complete and verifiable transactional history without the necessity to rely on a trusted "third" party.

For discussion of supply and demand considerations of bitcoin price formation, see Ciaian, Pavel, Miroslava Rajcaniova, and d'Artis Kancs "The economics of BitCoin price formation," Applied Economics, , p. The bitcoin transaction verification process is based on a predetermined algorithm, with its ultimate stock of bitcoin limited to 21 million units.

Liquidity captures the degree to which an asset or a financial instrument can be quickly bought or sold in the market without affecting its price. See p. This is an amount of money deposited by both the buyer and seller of a futures contract [ Therefore, futures contracts represent a larger contract value that can be controlled with a relatively small amount of capital.

This provides the trader with greater flexibility and capital efficiency. Initial margin is a collateral that needs to be deposited with the exchange prior to opening a position, whereas maintenance margin is a collateral that needs to be maintained with the exchange to keep the position open.

The maintenance margin is generally lower than the initial margin. The purpose of the margin requirements is to reduce counterparty risk. The percentages for the month are calculated based on monthly volumes when the trading of bitcoin futures was possible on both exchanges. The average volume calculation considers data starting on December 18, and excludes the last week of the year , which contains only Monday, December 31, The weekly trading volume in dollars is an aggregation of the daily volumes of each of the contracts multiplied by the corresponding daily close price.