The Chicago Mercantile Exchange (CME Group) wants to allow futures traders to place even bigger bets on bitcoin.
CME announced its intention to increase the so-called spot month position limit for its bitcoin futures contracts in a letter to the Commodity Futures Trading Commission (CFTC) of the United States on Thursday.
The limit would go from 1,000 contracts per month to 2,000 for any individual investor. Since each contract is for five bitcoins, the change means that a merchant’s maximum exposure would double from 5,000 bitcoins (with an approximate value of $ 50 million at current prices) to 2,000 contracts (10,000 bitcoins, or $ 100 million).
Undoubtedly, few operators, if there are any, are doing so much volume at this time, since the exchange now sees an average daily volume of 7,100 contracts in general, according to a spokesperson.
But the company sees space for this market to grow, and seeks to increase these limits “based on the significant growth and acceptance of our CME Bitcoin futures markets with financial liquidity, as well as our analysis of the underlying bitcoin market,” the spokesman said. .
If the CFTC does not oppose the plan, the measure will take effect on September 30 for the October 2019 contract, CME managing director and chief regulatory advisor Christopher Bowen wrote in the letter.
According to the CFTC, position limits are designed to avoid “excessive speculation” in commodities that support a futures product.
The concern is that without these limits, excessive speculation in a particular futures contract could cause the price of the underlying asset to fluctuate suddenly.
“In general, position limits are not necessary for markets where the threat of market manipulation is non-existent or very low,” says the CFTC website.
As such, CME’s move on Thursday can be seen as a sign that the bitcoin market is maturing, as well as a sign that bitcoin futures contracts are better understood than they were before.
Under the plan, the level of responsibility for a single month would be maintained at 5,000 contracts, which means that CME would continue to analyze only those merchants whose volumes exceed the threshold.
A good year
CME launched its cash-settled futures contract at the end of 2017, along with its rival Cboe. However, Cboe announced in March that it would close its futures market, leaving CME as the only exchange to offer the product in the US.
While CME is currently the only exchange that offers bitcoin futures in the country, Intercontinental Exchange, through its ICE Futures US wing and its subsidiary Bakkt, plans to offer futures contracts with physical settlement at the end of this month. Several other companies are also looking to offer physically liquidated futures and forwards products.
In recent weeks, the CME spokesman said, the exchange has seen “20 successful and incident-free agreements,” and currently has a record number of large interest holders open at 56, and a record amount of interest open at 6,128 (the number of futures) from the beginning of July.
More than 1,200 operators have registered on the platform since early 2019.
“This is one more way to provide customers, institutional merchants and end users with additional flexibility to trade and cover the risk of the bitcoin price,” the spokesman said.
Tim McCourt, CME managing director of equity products and bitcoin futures image via CoinDesk archives