CME Group’s announcement on Tuesday (October 31) that it intends to offer futures on Bitcoin this month sent the cryptocurrency surging past $6,400 for the first time; the group’s move has been viewed as bringing Bitcoin a step closer to acceptance within mainstream finance by placing it alongside the CME’s stable of futures on interest rates, stock indices, commodities and currencies.

Bitcoin’s price has soared from $966 at the start of the year, breaking through the $5,000 mark for the first time on October 11 before settling at $6,362.65 in afternoon trading on October 31, up by 4% for the day.

Futures are derivatives contracts that investors and companies typically use to speculate on prices or hedge risk against turns in the market. Other major markets like stocks, bonds, commodities and currencies all have derivatives based on them. CME’s futures option would allow investors to hedge bets that the price of bitcoin will rise, something that is difficult at present.

CME Group, the world’s largest derivatives exchange, explained that the futures will be cash-settled and based on the CME CF Bitcoin Reference Rate, a Bitcoin price index it launched last year.

The news comes as a surprise because in September CME president Bryan Durkin told Bloomberg: “I really don’t see us going forward with a futures contract in the very near future.”
However, Terry Duffy, CME Group chairman and chief executive officer, explained that they were simply responding to increased interest in Bitcoin and that the new vehicle “will provide investors with transparency, price discovery and risk transfer capabilities.”

Garrett See, chief executive of DV Chain told CNBC that CME’s announcement showed “cryptocurrencies are gaining more legitimacy in the financial marketplace. It’s really exciting. I think it’s going to bring a lot of liquidity.”

The launch of Bitcoin futures contracts is contingent on CME receiving regulatory approval from the US Commodity Futures Trading Commission (CFTC).
Duffy said on CNBC’s “Closing Bell” that he is “confident” the CME’s self-certification process at the CFTC and full application process will go through. “We’ve been working with the regulator. They understand our application. And they understand our model very, very well.”

The CFTC declared bitcoin and other virtual currencies a “commodity” in 2015, enabling it to police futures contracts based on them. The agency recently warned that unregistered cash bitcoin markets are susceptible to “bucket shop” schemes, “Ponzi schemers” and “fraudsters seeking to capitalise on the current attention focused on virtual currencies”.

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