This Week in Futures Options 77: The Great Bitcoin Bonanza

Nov 13, 2017

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Bitcoin Madness Strikes the Audience

#TWIFO Question of the week: Which options product do you want us to discuss live this Friday 1:30pm CT?

What Is Bitcoin Reference Rate?

The CME CF Bitcoin Reference Rate (“BRR”) is a daily reference rate Of the U.S. Dollar price of one bitcoin as of 4:00 p.m. London time. It is representative of the bitcoin trading activity on Constituent Exchanges and is geared towards resilience and replicability.
METHODOLOGY: Aggregation of trade executions occurring on Constituent Exchanges between 3:00 p.m. and 4:00 p.m. London time
All Relevant Transactions are added to a joint list, recording the trade price and size for each transaction. The list is partitioned into 12 equally-sized time intervals of 5 minutes each. For each partition separately, the volume weighted median trade price is calculated from the trade prices and sizes of all Relevant Transactions, i.e. across all Constituent Exchanges. A volume weighted median differs from a standard median in that a weighting factor, in this case trade size, is factored into the calculation. The BRR is then given by the equally-weighted average of the volume-weighted medians of all partitions
DISSEMINATION: Once per day, every day of the year including weekends and holidays, between 4:00 p.m. and 4:30p.m. London time

Bitcoin Futures Contract Specs

BRR: Currently $6811
SIZE: 5 bitcoin, as defined by the CME CF Bitcoin Reference Rate (BRR)
Minimum Price Fluctuation: Outright: $5.00 per bitcoin = $25.00 per contract. Calendar Spread and Basis Trade at Index Close (BTIC): $1.00 per bitcoin = $5.00 per contract
Position Limits: Spot Position Limits are set at 1,000 contracts. A position accountability level of 5,000 contracts will be applied to positions in single months outside the spot month and in all months combined. The reportable level will be 25 contracts.
Price Limits: Special price fluctuation limits equal to 7% above and below prior settlement price and 13% above and below prior settlement price and a price limit of 20% above or below the previous settlement price. Trading will not be permitted outside the 20% above and below prior settlement price.

After CME announced that they would soon be offering Bitcoin futures, the price of the digital currency took a big upward swing. However, CME is of the opinion that futures could actually put a stop to Bitcoin’s synonymous volatility.
CME will be putting in place special price fluctuation limits that will help protect investors from the notorious price swings, but these same protections could also help ease the price swings and make the digital currency settle down somewhat.
After CME announced that they would soon be offering Bitcoin futures, the price of the digital currency took a big upward swing. However, CME is of the opinion that futures could actually put a stop to Bitcoin’s synonymous volatility.
CME will be putting in place special price fluctuation limits that will help protect investors from the notorious price swings, but these same protections could also help ease the price swings and make the digital currency settle down somewhat.
Many believe that it is these violent swings that are stopping mass adoption of the digital currency, especially as a currency. If there was a more steady rate, then Bitcoin would be able to stretch more towards being a currency while still holding onto its power as a store of value.