It was in November 2017 when the CME Group (CME) launched futures contracts on Bitcoin for trading. Now, two years later the exchange announced list options on Bitcoin to begin trading in January 2020. For some this was a long time coming, for others, it’s a sign that Bitcoin still a bubble waiting to burst.

At the time of the futures launched it was supposed to create a new level of legitimacy for the cryptocurrency but instead seemed to be a classic case of “ringing the bell” at the top.

Indeed, on the day following CME’s announcement the price of Bitcoin surged by some $400 to cross above $10,000 for the first time and went parabolic to top out above $17,500 by mid-December.

By the time BTC futures began to trade in January of 2018 the bubble had burst and BTC was back below $10,000 before ultimately sinking below $5,000 earlier this year.

(Source: Coindesk)

At the time of the launch, I wrote “I think it’s premature to list actual futures contracts” with my main complaint is that futures contracts have historically been created or brought to market because they offer a true economic purpose. Namely, as way producers and users of a commodity or asset to hedge.

At the time there was very little use BTC as a currency for transactions so there was no need for hedging, hence it was the futures would merely be a vehicle for speculation. Remember the contracts are cash-settled, meaning they are not a way to accumulate underlying Bitcoins.

Trading in the futures never really gained traction; there still just 3,300 account trading some 4,000 contracts of BTC futures a day; barely a blip of the over 5 million contracts that trade on CME every day.

While Bitcoin has not really seen an expanded use as a currency it has proven very resilient as a store of wealth with its price moving back up to the $14,000 level as people looked alternative to negative interest rates and a general distrust of fiat currencies.

The CME’s announcement could be seen as a response to the ICE Exchange (ICE), which owns the NYSE, which launched its own BTC futures last week.    With options, CME can be looking for a way to maintain its role as the leader in futures and trading and is essentially a call option on the potential growth of Bitcoin and possibly other digital currencies.

ICE’s futures product is part of a venture called Bakkt which includes investments from companies such as Starbucks (SBUX) and Microsoft (MSFT) with a focus on developing ways to let customers convert digital assets making it easier for both merchants and customers use Bitcoin as a tool for payment processing.

Most agree the underlying blockchain technology of Bitcoin has many valuable use cases.  And each new product, from CME, ICE, and elsewhere, is another building block in what is expected to eventually be an institutional market for cryptocurrencies as their own asset class.

CME shares were trading at $212.79 per share on Tuesday afternoon, up $0.51 (+0.24%). Year-to-date, CME has gained 14.41%, versus a 19.11% rise in the benchmark S&P 500 index during the same period.

About the Author: Option Sensei

Steve has more than 30 years of investment experience with an expertise in options trading. He’s written for TheStreet.com, Minyanville and currently for Option Sensei. Learn more about Steve’s background, along with links to his most recent articles. More...

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