Topic: Some Secondary Effects from a Bitcoin CME Futures Contract (Read 193 times)

A lot of you have heard by now the rumors that the CME will list a Bitcoin Futures Contract ...

https://cointelegraph.com/news/bitcoin-hits-new-all-time-high-as-cme-group-announces-futures-trading

If this does come to pass it's important to be aware of some important implications of futures contracts on an underlying.

Derivatives
Any listed product is going to have derivatives attached to it, be prepared to see increased volatility as option traders try to manage their gamma.

Benchmarks
All futures have a close. The closing price is often a VWAP within a 1-2min band of time depending on the commodity. This allows index funds to hedge exposure and have an accurate mark to market for their fund reporting. What does this mean for Bitcoin? We could potentially see extremely volatile swings during this window.

New Money
Cash settled and the elimination of having to deal with private keys will allow a lot of old money to come in. Even though this is cash settled it's important to know that counter parties are going to need to hedge with physical (ie bitcoin) which will create positive price pressure just from the shear amount of new money coming in.

EFP or Basis Risk
With buying/selling futures and hedging in spot there is going to be a basis risk or the differential of where the futures contract trades and where spot can be bought. This is an OTC market that can have MASSIVE swings in price but is another secondary market and opportunities for large traders. EFP discrepancies can also dictate price if large spreads start to occur. It's very important to be aware of current EFP levels moving close to expiry.


These are some quick points but I think its important to start thinking about them!