Elliot Hill


CBOE Pull the Plug on Bitcoin Cash Based Futures —and Why this is a Good Thing for Bitcoin.

‘Pull the plug’ is a phrase rarely associated with positive sentiment, but for the Bitcoin market, CBOE’s decision to cancel their Bitcoin futures is far more bullish than it sounds.

Photo by Dmitry Moraine on Unsplash

The Chicago Board Options Exchange (CBOE) is the largest U.S. options exchange, which offers options trading of over 2,200 companies.

Cash based futures settlements are used in certain types of futures and options contracts. When the futures contract expires, instead of the seller settling in the underlying asset, in this case Bitcoin, they deliver the associated cash position.

In December 2017, CBOE was the first ever exchange to introduce Bitcoin futures, coinciding with the top of the Bitcoin roller-coaster market, in an effort to introduce institutional traders to the leading digital asset.

However, CBOE have recently announced that they’re intending to pull the plug on their current Bitcoin futures contract, which is set to expire in June 2019, following the 78% decline in BTC price since CBOE’s futures contracts began trading.

Likewise, CBOE largely lost much of their volume to CME cash backed Bitcoin futures, which were released a few days later also during December 2017, and captured much greater trading volumes throughout most of the futures contracts history.

Why is this Positive News for Bitcoin?

With BTC’s current push above $4000, many crypto analysts are suggesting that Bitcoin may indeed have found its bottom.

That’s certainly the sentiment offered by CNBC’s Fast Money panel, who speculate that the end of the CBOE cash backed futures coincides with retail investors and shorts becoming exhausted and losing momentum, whilst institutional investors gear up to enter the market later this year.

Institutional money, from the likes of Bakkt and Fidelity’s offerings, are just around the corner. This comes as custody options have become more robust, significantly reducing the need to trade futures contracts through exchanges such as CBOE.

Bitcoin Cash Backed Futures were Damaging for Bitcoin

Back in 2017 when BTC cash backed futures were first introduced, tech analyst Gene Munster stated:

[Bitcoin futures] could have a material negative impact on the price of Bitcoin [as] investors will have an easier time betting against bitcoin”

As it happens, this was true. Shortly after CBOE and CBE launched their futures contracts in December 2017, the price of Bitcoin plummeted. Cash based Bitcoin futures essentially allowed speculative investors to bet against the price of Bitcoin, and settle in cash.

In contrast, Bakkt’s upcoming BTC futures is settled in Bitcoin, providing a derivative much more closely correlated with the actual Bitcoin market itself.

Many have speculated that CBOE’s cash backed futures led to particularly wealthy participants intentionally causing market volatility within the BTC markets, to profit in cash via positions in cash backed futures contracts.

Whilst this is of course highly speculative, overall sentiment in the cryptocurrency community seems to have welcomed the close of the the CBOE BTC futures with open arms.

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