Leading derivatives exchange CME Group
Additionally, the algorithmic trading community appears poised to utilize MBT contracts for better price discovery and more granular risk management. Together, this adoption could deepen CMEs positioning as the most widely-used and regulated bitcoin liquidity marketplace.
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MBT Contracts May Accelerate Already Strong Retail Demand for BTC Futures.
This new product is designed to take advantage of already strong demand from the retail community for its bitcoin futures products. According to Commodity Futures Trading Commission (CFTC) open interest data, the total value of all outstanding futures contracts, retail investors hold the largest share of long BTC open contracts of any customer group.
So far this year the group is averaging 3,133 long/buy and 766 short/sell BTC contracts in open interest between January 5 to March 23. Furthermore, this net-buyer demand contrasts sharply with hedge funds that are the largest market participants in CME BTC futures and are net sellers of the cryptocurrency, averaging 7,794 short contracts to 2,983 long contracts.
Now with the initial margin requirements—which the CME sets as the minimum capital to start a trade—dropping from $123,400 for the current 5 bitcoin futures contract to $2,468 for the MBT this trend could grow.
MBT Contracts Offer Hidden Value For Institutions
Additionally, MBT contracts may be appealing to institutions as a price discovery tool to refine their programmatic and algorithmic trading approaches, where fractions of a cent can make a major difference. When taking this approach, institutions will place high numbers of low-value trades fired rapidly by automated systems to independently discover the price of a security. Without such opportunities, institutions must rely on price quotes from banks, exchanges, or broker firms that may not always be accurate. Historically, the users of small futures contracts for price discovery have been hedge funds, brokerage firms, commodity trading advisor (CTA) firms, banks, and even corporate treasuries.
During my interview with Tim McCourt, global head of equity index products and alternative investment products at the CME, he confirmed that some of the MBT demand they expect will come from institutions seeking a more optimal price discovery and risk management. McCourt said the market is witnessing the “real maturation of the bitcoin ecosystem” and noted that “there’s a lot of interdependencies between the various liquidity pools.” He expounded further to say “we are seeing the velocity, the inter-relatedness of the various liquidity pools increase over time” and that the CME anticipates that the introduction…