The Financial Times reported on Thursday, May 16, that the Chicago Mercantile Exchange (CME), the world’s largest futures exchange, is planning to launch Bitcoin trading. This move aims to capitalize on the increasing demand from Wall Street fund managers this year for investments in the cryptocurrency sector.
According to three individuals directly involved in the discussions, CME has been in continuous talks with traders interested in buying and selling cryptocurrencies in a regulated market.
Although the plan has not been finalized, it would mark a significant step following the U.S. Securities and Exchange Commission’s (SEC) approval of a stock market fund directly investing in Bitcoin in January. This would signify a further entry of major Wall Street institutions into the digital asset space.
The report mentions that CME already conducts Bitcoin futures trading. Introducing Bitcoin spot trading would make it easier for investors to engage in so-called basis trading.
Basis trading, a common strategy among professional Bitcoin traders and a staple in the U.S. Treasury market, involves borrowing money to sell futures while buying the underlying asset, profiting from the small differences between the two. Most Treasury basis trading takes place on CME.
With Bitcoin rebounding significantly from its 2022 lows and hitting an all-time high earlier this year, coupled with growing acceptance of Bitcoin as a tradable asset and regulatory crackdowns, some of the world’s largest financial institutions have shifted from Bitcoin skeptics to proponents regarding illicit market activities.
Despite Bitcoin's price retreating after peaking above $73,000 in March, Bitcoin spot ETFs have become the fastest-growing ETFs ever.
Major investors like hedge funds Bracebridge Capital and pension funds like the Wisconsin Investment Board have poured over $10 billion into investment tools operated by asset management companies such as BlackRock, Fidelity, and Ark.
BlackRock CEO Larry Fink has expressed his "long-term bullish" outlook on Bitcoin.
As traders seek to profit from Bitcoin’s volatility, CME has emerged as one of the biggest beneficiaries of renewed institutional interest, surpassing Binance to become the world's largest Bitcoin futures market.
CME primarily serves hedge funds and proprietary trading firms, with about 26,000 open positions on its Chicago market, valued at approximately $8.5 billion, more than double the previous year’s amount.
According to informed sources, its potential spot trading business will be conducted through the Swiss EBS currency trading platform, which has extensive regulation for trading and storing crypto assets.
The track record of large traditional exchange operators in spot cryptocurrency trading is mixed. Deutsche Börse opened its own digital asset market this year, but CME’s local competitor, Cboe Global Markets, announced last month it would close its spot market business, citing the lack of clear regulation in the U.S.
A cryptocurrency trading executive questioned whether CME’s Bitcoin trading operations, if run as two separate markets (CME in Chicago and EBS in Switzerland), could capture significant market share.
"I find it hard to see how they could achieve all available efficiencies," he said.
He added that the biggest advantage of CME’s move is that large, regulated exchanges are increasingly satisfied with the infrastructure for digital asset trading, such as ensuring the security of coins.
This means exchanges might soon accept crypto-related collateral, such as tokenized money market funds, to issue margin calls more timely.
Sanya
JinseFinance
Bernice
cryptopotato
Bitcoinist