The upcoming Bitcoin (BTC) options on futures may be a hit product with miners and traders based in China, the CME Group believes.
CME Notes Robust Interest from Asian Traders
Tim McCourt, CME Group’s global head of equity products, expects to see the new options contracts surpass the popularity of futures. Even now, as much as 50% of futures trading volumes originate from Europe and Asia, reported the South China Morning Post. The derivative products are scheduled to launch in the first quarter of 2020.
The CME BTC futures, which are cash-settled, are about to reach their second anniversary. The contract survived with strong trading interest, whereas the competing CBOE futures markets closed. CME futures markets also saw their volumes grow of late, peaking in May with 34,000 futures contracts traded.
The CME also noted it traded on average 35,000 BTC per day or 7,000 contracts. The high interest remains despite the strict requirements for reserves and cash settlement. The CME Group announced it would continue offering only cash-settled contracts, not following the lead of the Bakkt exchange.
Bitcoin Miners to Benefit from Options Contract
Options on futures would be a great fit for the economy of Bitcoin mining, believes McCourt. Miners usually rely on spot prices, or OTC placements, to sell some of their rewards. Having an options market would smooth out the potential returns from miners. The options launch will coincide with the halving of the Bitcoin block reward, potentially making the mining economy more challenging.
“While futures give you a one-for-one exposure, whereby the movement of the underlying bitcoin translates directly to a specific dollar value per contract, an option gives you varying strike-price levels and can give you either downside protection, or upside exposure at a fraction of the underlying price,” said McCourt.
A futures contract is more straightforward, as it required a buy or a sell once the futures period expires. An option, however, offers the opportunity to buy or sell at a certain price in the future. Miners would thus have the chance of a more predictable reward placement and be able to calculate profitability better. The options contracts allow the trader to buy or sell the asset at a predetermined price, at or before a known expiration date.
Rough estimates see mining in China profitable at BTC prices as low as $3,500. With current prices above $8,500, the Bitcoin network is still profitable for most mining facilities.
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