Trading platforms launch Bitcoin options one after another
On January 13, 2020, the Chicago Mercantile Exchange (CME) will launch a Bitcoin option contract. CME has announced the details of the option contract. According to the information published in their website announcement, as long as it is approved by the regulatory agency, its option business will take effect on January 13, 2020.
According to the CME’s recently announced preliminary specification for bitcoin options, bitcoin options expire at the same time as the corresponding bitcoin monthly futures. This means that if a trader chooses to exercise the option (buy or sell the underlying position) at expiration, the position will immediately expire for cash. Each options contract is also the same as each bitcoin futures contract, which is equivalent to 5 bitcoins per contract, and trading will close at 4 p.m. on the last Friday of each contract month.
Recall that in the past month, several major exchanges have successively announced the launch of Bitcoin options, I believe everyone has heard of it. Among them, Bakkt, a subsidiary of Intercontinental Exchange, the parent company of the New York Stock Exchange, officially launched Bitcoin options and cash-settled futures contract products on December 9, 2019, ahead of CME. The digital asset trading platform OKEx also launched a cash-settled BTC/USD options trading simulation in late December. In addition, according to the Block, Bitfinex also plans to launch options as early as the first quarter of this year.
We can see that both traditional exchanges and native digital asset trading platforms seem to have begun to target the Bitcoin options contract market and have entered the market one after another. Recently, the latest quarterly report on the CoinGecko cryptocurrency market shows that cryptocurrency derivatives have ushered in a round of explosive growth, from 6 in early July this year to 17 in early October, including several well-known mainstream companies at home and abroad. trading platform.
In fact, Bitcoin options are not new. It has been developed for several years, but it has not become mainstream. As early as two years ago, in November 2017, LedgerX, an American compliant cryptocurrency exchange, launched the first long-term trading Bitcoin futures options (LEAPS), priced at $10,000. In August of this year, after obtaining approval from the US Commodity Futures Trading Commission (CFTC), LedgerX announced retail trading on Omni, which is open to all retail investors, providing bitcoin spot and options trading.
According to the current trend, with the entry of compliant trading platforms such as the Chicago Mercantile Exchange, it means that Bitcoin options have officially entered the mainstream market. Therefore, Bitcoin options are a new trend in the Bitcoin market. It may be a major trend in the encryption market in 2020 and in the future. A new competitive landscape is taking shape in the derivatives market.
Reasons for the Explosion of the Options Market
So what, Bitcoin options will become a new trend in the market? Can the futures market not meet the needs of investors? And why, CME Group, Bakkt and other trading institutions have launched option products at this time point?
First of all, it is obvious that from the perspective of supply, the options market has relatively large development space and prospects. In the traditional financial market, the trading volume of derivatives is about 10 times larger than that of spot trading, and the trading volume of options and futures is basically equal. However, the current option products in the field of virtual assets are not yet mature, and the trading volume of options is much smaller than that of futures. So if the digital currency basically follows the evolution process of traditional finance, the market space for derivatives in the future is also very large.
Secondly, from the perspective of demand, options have certain unique advantages compared with cryptocurrency spot and futures trading, which are more suitable for the needs of the market and users, and can bring higher profits. What are the advantages of options? Options can be combined with a variety of strategies, and there are many ways to play and options. Gain more income through leverage. In addition, to reduce the risk, the buyer's risk of the option is basically only the option fee, but the income has unlimited possibilities. In short, options can help institutional investors and professional traders manage exposure to the Bitcoin spot market and hedge positions in delivery contracts. CME executive Tim McCourt also said recently that he believes Asian investors and miners have huge demand for CME Group's upcoming bitcoin options.
In addition, since the last quarter of 2018, the volume of futures trading has soared, paving the way for the development of other derivatives. Mainly represented by the "regular army" such as Bakkt, although it was unfavorable at the beginning, in the first two months, under the condition of sluggish bitcoin spot performance, the trading volume of bitcoin futures contracts on the Bakkt platform hit new highs repeatedly, which also implies that institutions are interested in derivatives. Increased interest in Bitcoin derivatives, and trends in the Bitcoin derivatives market.
What impact will it have on the bitcoin market?
So if the options market rises and explodes in 2020, what impact may it have on Bitcoin (the market)?
The newly developed bitcoin options market on these platforms usually starts off slowly in terms of trading volume, so it is too early to say directly what impact it will have on the spot price of bitcoin. After all, after the Chicago Board Options Exchange (CBOE) launched the world's first bitcoin futures contract in December 2017, the market experienced a continuous plunge in 2018. Later, the trading volume of bitcoin has been less than half of that of CME, so this year In March, the CBOE shut down trading in bitcoin futures contracts. However, some of these platforms may eventually accumulate high trading volumes, at which point they may have an impact on the spot and futures markets.
From a macro perspective, the development of Bitcoin has gone through ten years, but being recognized by regulators and entering the global mainstream financial consumer market has always been an obstacle that digital currencies such as Bitcoin have been trying to overcome. With the addition of more and more institutional platforms from last year to this year, the Bitcoin trading market is gradually entering the mainstream financial market.
The support of compliant platforms such as CME and Bakkt in the Bitcoin options market has created conditions for mainstream funds to enter the market and provided more liquidity for the market; it also allows professional investors and institutions to have a deep understanding of the Bitcoin market, which can gradually contribute to the Bitcoin market. To pave the way for bitcoin to enter the mainstream market and remove obstacles; at the same time, in a regulated environment, it will also make the bitcoin market more compliant, and investors can have a more stable and secure channel to enter the cryptocurrency market.
Finally, I want to say that options, as a financial product with a long history in the traditional financial field, have become the development direction of the cryptocurrency market, which is an inevitable trend and also represents the gradual maturity of the entire market and industry. In the options market, professional investors can conduct precise hedging and additional transactions through a combination of different option products. Soon, the entire market will also generate various professional trading strategies and investment opportunities. A new direction for learning. However, this may not have any impact on friends who simply hoard Bitcoin.
