Futures exchange CME plans to launch bitcoin trading

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CME Group, the world’s largest futures exchange, plans to launch bitcoin trading, aiming to capitalize on growing demand this year among Wall Street money managers for exposure to the cryptocurrency sector.

The Chicago-based group has held discussions with traders who want to buy and sell the cryptocurrency on a regulated market, according to three people with direct knowledge of the negotiations.

The plan, which has not yet been finalized, would mark further encroachment by major Wall Street institutions into the digital assets sector following the decision by the US Securities and Exchange Commission. approval in January of stock exchange funds that invest directly in bitcoin.

CME declined to comment.

The introduction of bitcoin spot trading on CME, which already hosts bitcoin futures trading, would make it easier for investors to carry out so-called basis trades. A common strategy among professional Bitcoin traders and a staple of the U.S. Treasury market, basis trading involves borrowing money to sell futures contracts while purchasing the underlying asset and extracting gains from the small gap between the two. The majority of Treasury-based trading takes place on CME sites.

Some of the world’s largest financial institutions have gone from being Bitcoin skeptics to its advocates, thanks to its sharp rebound from its 2022 low to an all-time high earlier this year, as well as its acceptance growing by investors as a tradable asset and repression by regulators. on illegal market activities.

Although the token has lost a fifth of its value since its March peak above $73,000, exchange-traded funds linked to the token have become the fastest-growing ETFs of all time.

Hedge funds, including Bracebridge Capital, and pension funds, such as the Wisconsin Investment Board, are among the large investors who have invested more than $10 billion in assets in vehicles managed by asset managers like BlackRock, Fidelity and Ark. In March, Larry Fink, CEO of BlackRock, declared himself “long-term optimistic” on Bitcoin.

CME has been one of the biggest beneficiaries of the wave of renewed institutional interest, overtaking Binance as the world’s largest Bitcoin futures market, as traders try to take advantage of the coin’s volatility.

CME, which caters largely to hedge funds and proprietary traders, has about 26,000 open positions, worth about $8.5 billion, on its Chicago market, more than double the amount from a year ago.

Its potential spot trading activities would be managed through currency trading platform EBS in Switzerland, which has detailed regulations governing the trading and storage of crypto assets, the sources said.

Large traditional exchange operators have a spotty track record when it comes to spot cryptocurrency trading. Deutsche Börse opened its own digital assets market this year, but CME rival CBOE Global Markets announced last month that it would close its spot market operations, blaming a lack of clear U.S. regulation.

One cryptocurrency trading executive questioned whether CME could gain significant market share if its bitcoin trading business operated on two exchanges, CME in Chicago and EBS in Switzerland. “I find it hard to see how they could get all the efficiencies they have,” he said.

He added that the biggest benefit of CME’s move was that large regulated exchanges were becoming more comfortable with the infrastructure for trading digital assets, such as coin security.

This means exchanges could soon accept crypto-related collateral, such as tokenized money market funds, to make margin calls faster, he said.

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