TL;DR: The 178-year-old US financial institution comprising CME Group announced its intention to offer Bitcoin options “on its Bitcoin futures contracts in Q1 2020, pending regulatory review.” Back in late 2017, the prestigious exchange was among the first, along with Cboe, to recognize Bitcoin futures. Some watchers and enthusiasts are hoping this latest promise is another sign of more legacy finance validation for cryptocurrency assets, leading toward other instruments such as the much-coveted ETF.

Bitcoin Options Coming to CME Q1 2020

According to The Street, “An option is a contract that allows (but doesn’t require) an investor to buy or sell an underlying instrument like a security, ETF or even index at a predetermined price over a certain period of time. Buying and selling options is done on the options market, which trades contracts based on securities. Buying an option that allows you to buy shares at a later time is called a ‘call option,’ whereas buying an option that allows you to sell shares at a later time is called a ‘put option.”

For Bitcoiners, they’re also an ever-more exotic way to potentially trade digital assets. And Bitcoin options could be said to match the cryptocurrency’s ethos in a way, as traders of the product do not own it formally but only as a contract. In traditional circles, options are contrasted with formal stock ownership, for example, and Bitcoin, of course, is not a corporation or company. Options are also considered not as risky as futures because a trader “can withdraw (or walk away from) an options contract at any point. The price of the option (its premium) is thus a percentage of the underlying asset or security,” The Street explained further. Like all derivatives, option prices are “derived” from underlying market instruments.

CME’s Tim McCourt noted Bitcoin options can be used to hedge against price risk. “These new products are designed to help institutions and professional traders to manage spot market bitcoin exposure, as well as hedge Bitcoin futures positions in a regulated exchange environment,” he stressed. At this point, there is a near two-year history of derivatives associated with bitcoin for legacy finance to evaluate, and the CME cites “20 successful futures expiration settlements and more than 3,300 individual accounts have traded the product since inception. Year to date, nearly 7,000 CME Bitcoin futures contracts (equivalent to about 35,000 bitcoin) have traded on average each day. At the same time, institutional interest continues to build with the number of large open interest holders reaching a record 56 in July.”

For whatever reason, the futures hurdle seems to be much easier to hop with regard to regulators such as the Commodities Futures Exchange Commission (CFTC) compared to the prospect of an exchange-traded fund (ETF) and its gatekeeper, the US Securities and Exchange Commission (SEC). The SEC’s process has been discouraging to firms who continue to formally apply for American market access, among the most liquid in the world, leading experts to wonder if a Bitcoin ETF will ever launch in the United States. Still others believe the likes of CME showing confidence in Bitcoin options, for example, which are in financial taxonomy parlance not too far from ETFs traditionally, could eventually convince SEC minders to loosen what appears to be an ever-tightening grip.

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