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Cryptocurrencies has taken a big step into the mainstream investment world as the Chicago Mercantile Exchange prepares to launch a Bitcoin futures contract by the end of the year.
In an announcement released Tuesday, the CME said that the new contract will be cash-settled and based on the exchange’s CF Bitcoin Reference Rate, which is a one-day reference rate of Bitcoin priced in U.S. dollars. The latest annoucement has caused Bitcoin to surge to new record highs.
According to Kitco News aggregated bitcoin charts, the e-currency last traded at a record high of $6,323.70.
“Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract,” said Terry Duffy, CME Group Chairman and Chief Executive Officer. “As the world’s largest regulated FX marketplace, CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities.”
In a comment to Kitco News, the CME said that it is watching the cryptocurrency space very closely but could not comment on whether this is just the first of what could be many new futures products. While Bitcoin is the biggest cryptocurrency, other products like Ethereum, and Ripple are gaining in popularity and marketshare.
According to the CME, the cryptocurrency market capitalization has grown in recent years to $172 billion, with bitcoin representing more than 54 percent of that total, or $94 billion. The bitcoin spot market has also grown to trade roughly $1.5 billion in notional value each day.
Phil Flynn, senior market analyst with at Price Futures Group, looks for the CME launch to add credibility to the cryptocurrency and for good volume to emerge, particularly from traders who might want to bet on downward moves in the price.
“This should be very bullish for bitcoin in a way because you now have an exchange that is actually trading this and giving it some kind of basis to work with,” said Flynn. “It gives a new layer of credibility to a current that a lot of people have said has been a fraud.”
Flynn added that the new future contract gives Bitcoin another dimension in the marketplace, giving traders the ability to place short bets in the marketplace.
“Once you have a futures contract, now you have a way to sell it or hedge it,” he said. ““I think it’s going to be a very successful contract,” Flynn said. “I think it’s going to put some street cred[ibility] into a currency that has been really thought by many to be kind of a Ponzi scheme.”
Bitcoin has gained significant investor attention as prices have recently pushed above $6,000 an ounce. Charts show that Bitcoin has rallied more than 500% since the start of the year.
Analysts have comment that strong speculation in Bitcoin has hurt gold prices, which has struggled to hold the key psychological level of $1.300 an ounceA Subsidiary of Price Holdings, Inc. – a Diversified Financial Services Firm. Member NIBA, NFA Past results are not necessarily indicative of future results. Investing in futures can involve substantial risk of loss & is not suitable for everyone. Trading foreign exchange also involves a high degree of risk. The leverage created by trading on margin can work against you as well as for you, and losses can exceed your entire investment. Before opening an account and trading, you should seek advice from your advisors as appropriate to ensure that you understand the risks and can withstand the losses. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or futures. The Price Futures Group, its officers, directors, employees, and brokers may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Reproduction and/or distribution of any portion of this report are strictly prohibited without the written permission of the author. Trading in futures contracts, options on futures contracts, and forward contracts is not suitable for all investors and involves substantial risks. ©2018