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CME President Hesitant To Develop Additional Cryptocurrency Derivatives



De Silva

Be quick but don’t hurry. Have traditional exchanges stumbled by rushing virtual currency derivatives to market?

It's been just shy of two months since the CME Group and CBOE self-certified and launched their bitcoin futures products, much to the dismay of many market participants and industry watchers. Not long after the settlement of the first bitcoin futures contracts, the Commodity Futures Trading Commission (CFTC) has instituted a "heightened review" process, and has determined to assess the appropriateness of self-certification for virtual currency derivatives.

On Tuesday, February 6, 2018, the agency is slated to testify before the Senate Banking Committee alongside the Securities and Exchange Commission. And, on February 14, 2018 (Valentine's Day), the CFTC's Technical Advisory Committee will host a public meeting, at which its members will discuss virtual currencies, blockchain, and distributed ledger technology.

Against this backdrop of increased regulatory scrutiny, the CME Group appears hesitant to introduce additional virtual currency derivatives.

"I'm not going to get over my skis on something that could be potentially damaging to the reputation of the company," said CME CEO Terry Duffy in a Thursday interview. "To say that you should just automatically go ahead and list others I think is a little irresponsible right now," he elaborated. "We need to learn more."

It's hard to feel that Duffy's statements are anything more than too little, too late. Bitcoin futures are already trading, and in light of the recent bitcoin downturn, it's fair to wonder just how much market manipulation or crypto minting wizardry is going on – Bitfinex, anyone? The only saving grace is that CME's five-bitcoin contract is more robust than the CBOE's. CME's bitcoin futures draw settlement pricing data for its Bitcoin Reference Rate from four cryptocurrency exchanges, while CBOE's relies exclusively on 4:00 p.m. auction data from Gemini.

Overall, it appears that traditional exchanges have been extraordinarily hasty to bring their virtual currency derivatives to market, possibly to the detriment of consumers and financially sound markets. The stunning rise of bitcoin easily seduced the financial movers and shakers, but they might not be ready to tango. Bitcoin is an unpredictable partner, so it will be interesting to see how the SEC and CFTC's testimony next week influences the CME Group's future plans.

Matthew De Silva

Matthew has a passion for law and technology. He graduated from Georgetown University, where he studied international economics and music. Matthew enjoys biking and listening to tech podcasts. He lives in Los Angeles.

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