December 2017 saw the Bitcoin price almost touch $20,000. However, that wasn’t the only landmark achieved in that month.
December 2017 also saw the Chicago Mercantile Exchange become one of the world’s first financial institutions to introduce Bitcoin futures trading. Since then, derivative trading on Bitcoin has become popular among institutional investors, and the demand for more futures offerings has seen platforms like Bakkt crop up, which offers physically-settled Bitcoin futures contracts.
CME announced in September that they would be introducing Bitcoin options as early as the first quarter of 2020, claiming that the launch of the same is aimed to provide clients with additional tools for precision hedging and trading. This launch is coming sooner than anyone expected, with the facility set to become open to investors on January 13, pending regulatory approval.
This comes in the face of surging interest among investors on the CME platform, and to be honest, among investors everywhere.
CME explained the relationship between futures contracts and options:
“CME options on Bitcoin futures give the buyer of a call/put the right to buy/sell one Bitcoin futures contract at a specified strike price at some future date. Upon termination of trading, in-the-money options, expire into one Bitcoin futures contract which immediately cash settles to the CME CF Bitcoin Reference Rate (BRR).”
On December 10, 2019, Bakkt launched CFTC-regulated options on Bitcoin futures. Barely 4 months old, Bakkt has been setting new volume and trading records ever since its tepid launch with just 72 contracts.
Many believe that the introduction and increasing popularity of derivative trading among investors is a good thing for Bitcoin, in that the market seems to be finally maturing after a rollercoaster 10 years.
A confluence of factors would possibly affect the Bitcoin price positively in 2020 and in light of that, some believe that derivatives would only serve to bring in more speculative traders that would hamper the maturity of the market while promoting volatility. Since Bakkt offers physically-settled contracts and not cash-settled contracts, it’s seen as groundbreaking.