CME Group's Crypto Portal

Author:Prathik DesaiTranslator:：Block unicorn

I always find it amusing when I see someone betting on cryptocurrency and making money based on a tweet about X. I've been there too. I remember five years ago, I put most of my monthly savings into Dogecoin because, well, Elon Musk mentioned it on Twitter. At that time, I didn't even know what cryptocurrency was.

But some funds entering the cryptocurrency space can't be achieved with just a tweet, a podcast, or a conference keynote speech. It requires more. Perhaps a memorandum from a federal regulator, a risk assessment, and a trustworthy platform would help. The latest statement from the U.S. Commodity Futures Trading Commission (CFTC) allows spot cryptocurrency products to be traded on CFTC-registered exchanges, which is exactly what that statement entails. The CFTC's tacit approval could prompt the Chicago Mercantile Exchange (CME), the most regulated derivatives market in the U.S., to list cryptocurrencies. If this happens, it will open the door to the cryptocurrency market, attracting a significant influx of funds from traditional markets into the cryptocurrency space. In today's in-depth analysis, I'll explain how this move could allow cryptocurrencies to flow into the same building in the US where the most trusted assets are held, and why this is important. Let's begin. Long before the seamless financial markets of today, people were reluctant to trade financial products. The problem wasn't a lack of buyers and sellers; there were plenty of them. The problem was a lack of trust; everyone worried, "What if the other party can't pay?" Today, you no longer need to worry about that. This is thanks to the often-underestimated invention of the modern stock exchange. It builds trust through standardized contracts, mandatory disclosures, and regulatory practices. These mature markets incorporate all of this into "clearing" and "margin" mechanisms, thus preventing settlement risks from hindering traders' activity every day. While people talk about "trustless" systems, trust is difficult to establish in the cryptocurrency market. A recent announcement from the U.S. Commodity Futures Trading Commission (CFTC) may fill this gap. Acting CFTC Chair Carolyn Van stated, "...listed spot cryptocurrency products will begin trading for the first time on CFTC-registered futures exchanges under federal regulation in the United States." Van anticipates this move will provide Americans with "more choices and make it easier for them to access safe, regulated U.S. markets." This update redefines the boundaries of a potential shift in the cryptocurrency landscape as regulators strive to integrate digital assets into the mainstream markets of the world's largest economy. A glance at the data from the Chicago Mercantile Exchange (CME) is enough to understand how important it can be to the cryptocurrency spot market. On November 21st, the CME's cryptocurrency futures and options trading volume hit a record high of 794,903 contracts, surpassing the previous record of 728,475 contracts set on August 22nd of this year. The market also released data on how much trading activity has moved into its regulated framework this year. Its year-to-date (YTD) daily average trading volume is 270,900 contracts, with a notional value of approximately $12 billion, representing a year-over-year increase of 132%. Meanwhile, the year-to-date average open interest is 299,700 contracts, with a notional value of $26.6 billion, up 82% year-over-year. Even under the assumption that the Chicago Mercantile Exchange (CME) converts only 5% of its notional trading volume into spot trading, that's equivalent to $600 million per day. If it reaches 15%, that figure could approach $2 billion per day. But what advantages does the CME have in bringing spot cryptocurrencies and derivatives under one roof? First, it shortens the distance between traders' positions and hedging. Currently, many traders place their cryptocurrency exposure in one place and their hedging positions in another. They might trade cryptocurrency futures on the Chicago Mercantile Exchange (CME) because it is regulated and clears, but their spot exposure might come from ETFs, prime brokers, or cryptocurrency exchanges. Each jump between different trading venues doesn't necessarily increase monetary costs, but it introduces non-monetary frictions. For example, it requires dealing with more counterparties, incurring more operating costs, and facing more risk points. If a regulated market simultaneously accommodates both the spot and derivatives markets, hedging would be more convenient, and rolling over positions would be more efficient. Both parts of a trader's bet could be incorporated into the same compliance system, including margin requirements, reporting, and monitoring. Crypto-native platforms that operate both spot and derivatives trading—Coinbase (with its Deribit arm), Kraken, and Robinhood—have already benefited from this "one-stop" service. The second advantage is that it changes how large traders define "spot." As a retail trader buying spot on a cryptocurrency exchange, you consider the asset's price. Funds, on the other hand, consider custody, settlement, reporting, and stability under market pressure. Derivatives exchanges like the Chicago Mercantile Exchange (CME) have established systems that enhance market confidence. CME's clearinghouse, margin system, and monitoring measures provide a regulated safe haven for large fund companies, allowing them to safely invest in the relatively volatile cryptocurrency market during periods of uncertainty. Tens of billions of dollars could flow in from large fund companies. U.S. spot Bitcoin ETF issuers alone hold over $112 billion in assets. Since their inception in January 2024, these issuers have received over $57 billion in inflows. The ecosystem combining spot trading and derivatives may prompt some investors to shift from "holding through funds" to "trading in the market." For fund companies, this can bring cost advantages and better control. ETFs charge fees for holding underlying assets. While their trading methods are similar to stocks, they still rely on the stock market infrastructure during trading hours. Fund companies that need to manage risk and take advantage of market inefficiencies tend to prefer platforms that offer 24/7 hedging, strict basis execution, frequent rebalancing, or market making. The third advantage is operational. The U.S. Commodity Futures Trading Commission (CFTC) explained this move as a response to "recent offshore exchange incidents," arguing that American citizens should have the right to market access with consumer protection and market integrity guarantees. The key underlying issue is leveraged trading. Pham explicitly pointed out that Congress initiated relevant reforms as early as after the financial crisis, stating that Congress originally hoped that leveraged trading in retail commodities could be conducted on futures exchanges, but has failed to clarify relevant regulations for many years. Leveraged trading is a breeding ground for the worst events in the cryptocurrency space. Without going back too long, the worst liquidation in cryptocurrency history on October 10th resulted in the loss of $19 billion. If leveraged trading could be moved to a platform centered on monitoring, margin discipline, and clearing, at least transparency could be improved. Then, you would no longer face opaque offshore clearing, but instead have transparent margins, known counterparties, and rules that won't be arbitrarily changed. This update even prompted cryptocurrency platforms to promise fair treatment for retail and large traders. Soon after, Bitnomial, a US-regulated derivatives exchange, announced it would offer “equal and fair treatment” to retail and institutional orders, without prioritizing routing. All things considered, this move by the CFTC seems promising, as it could make spot cryptocurrency trading easier and more trustworthy, something previously only achievable with large-capital flows. The CFTC's statement won't turn the Chicago Mercantile Exchange (CME) into a fully-fledged spot cryptocurrency exchange overnight. Even if the market moves in this direction, the initial version is likely to be conservatively designed, with fewer trading instruments, strict leverage terms, and trading channels relying on existing intermediaries within the CME ecosystem. This is because building trust is always a slow and gradual process. Historically, trust has been built through various safeguards, not through a random tweet about X.