CME Options on Bitcoin Futures Coming Soon, Bakkt Exchange’s Bitcoin Futures See Slow Start on First Day of Trading, and Binance Awarded ISO Security Accreditation
Weekly Investor Letter
Sept 26 — Crypto assets dropped around 16.8% this week, bringing the total market cap down to $219 billion. The Crescent Crypto Market Index (CCMIX) was down 18% while BTC lost 16% over the same period.
The crypto market saw a significant drawdown after a slight gain last week. The total value of the crypto market has dropped a little over 18% month-to-date, with Bitcoin dropping 20%. Large-cap altcoins, as a whole, performed worse than Bitcoin this week. Bitcoin outperformed all Crescent Crypto indices and CCMIX constituents this week. This is expected during a larger market drop.
Bitcoin vs. CCMIX vs. CCALT vs. CCDARK vs. CCSMART
Sep 20th — Sep 26th, 2019
Market Index Constituent Performance
Sep 20th — Sep 26th, 2019
- BTC outperformed all other large-cap constituents but still found itself down 16% on the week. BTC was the worst performer last week down a little over 3%. This is the third consecutive week that Bitcoin ended in the red.
- The CCMIX saw a weak performance in its constituents, with nine out of nine ending the week in the red. The majority of assets (7/9) are down more than 20%, and all nine constituents are more than 15%.
- XLM was the best performer last week with a 26% gain. This gain was effectively completely erased this week after XLM lost around 28%.
- The CCMIX decreased by 18% in value outperforming CCALT, CCSMART, and CCDARK indices. The CCSMART index performed second best with a 21.7% loss. CCDARK continues its poor performance relative to the other indices down 22.4% — the most for all indices. CCDARK was the second-worst performing index last week.
- ETH and XRP performed in the top 3 this week up for the second consecutive week, down 21% and 18% respectively. With BTC outperforming all other assets, it is clear that the largest market cap constituents saw the least amount of pain from this significant drawdown.
- BSV ended this week down 30.3% — the most of any constituent. BSV was the worst performer two weeks ago and the second-worst performer last week. Bitcoin forks as a whole performed the worst out of all large-cap assets, with BCH losing more than 29%. This has been a recurring trend throughout 2019.
- BTC dominance increased slightly from 67.7% of the total crypto market cap to 68.4% this week. This is the first week that BTC’s share of the total market cap increased since the first week of September.
On the same week of Bakkt’s Bitcoin Futures Exchange launch, CME Group announced its Bitcoin Options offering. CME stated that this product is tentatively set to roll out in the first quarter of 2020. Tim McCourt, CME Group’s global head of equity index and alternative investment products, said, “Based on increasing client demand and robust growth in our Bitcoin futures markets, we believe the launch of options will provide our clients with additional flexibility to trade and hedge their bitcoin price risk. These new products are designed to help institutions and professional traders to manage spot market bitcoin exposure, as well as hedge Bitcoin futures positions in a regulated exchange environment.” Evidently, CME has seen enough traction in their Bitcoin futures product to merit further investments in the digital asset space. Since 2017, CME recorded 20 successful futures expiration settlements with around 7,000 CME bitcoin futures contracts traded on average each day.
Why Does This Matter?
As explained by Tim McCourt, Bitcoin options allow for more nuanced trading strategies and greater flexibility in hedging Bitcoin price risk. The digital asset derivatives market has seen consistent volume that is multiples greater than the digital asset spot market. With that said, this volume is primarily located on unregulated exchanges (ie. Bitmex and Deribit). It is uncertain if traders on these unregulated exchanges will move to trade with CME. It is most likely that CME’s options products do not port over substantial volume away from unregulated exchanges, but rather open up access for latent demand in the form of traders unable to currently use non-U.S exchanges. It is no coincidence that CME announced its offering on the brink of Bakkt’s launch — possibly suggesting Bakkt has options products on the horizon.
Bakkt’s physically-backed futures launched this Monday and got off to a slow start. In the first hour, there were only 5 bitcoin monthly futures contracts bought. At the ten-hour mark, this number grew to a mere 28, with just one contract at a sub-$10,000 price. Bakkt’s flagship product, daily settling futures, attracted even less volume. CME bitcoin futures, on the other hand, traded $460 million on its first week. Lanre Sarumi, CEO of LevelTradingField, stated “I’m shocked there isn’t any volume. I thought that contract was going to fly out of the gate. Very odd.” This may simply be a product of brokers and institutions not comfortable or ready (on a risk-basis) to take on physically-settled bitcoin futures. The players who are are ready, as stated before, are already trading bitcoin settled futures on unregulated facilities.
Why Does This Matter?
It isn’t too surprising that Bakkt did not see high volumes for their futures contracts on launch. As Su Zhu, CEO and CIO of Three Arrow Capital stated “Bakkt will be likely a trickle and then a flood. The reality is that most regulated futures contracts get low adoption on day1 simply b/c, not all futures brokers are ready to clear it.” As brokers adjust their internal risk systems, we will likely see a significant uptick in volume over the next few months. It is actually already a bullish indicator that Bakkt managed to launch before the year’s end. Bakkt failing to attract CME comparable volumes in Q4 2019 may illustrate that the digital asset space is more nascent than we have previously believed — especially in the institutional infrastructure pipelines.
Binance, one of the leading cryptocurrency exchanges, says it has been awarded an information security accreditation after meeting standards set out by the International Organization for Standardization (ISO). To meet this ISO/IEC 27001 criteria, DNV GL, an international accredited registrar and classification society, and the United Kingdom Accreditation Service, a national body that evaluates firms on various standards, thoroughly audited Binance. Binance is now the first company in the industry to be verified under DNV and UKAS. Binance was examined on a variety of features ranging from security policy to asset management, totaling around 114 criteria across 14 categories. Binance CEO, Changpeng Zhao, stated “Obtaining the ISO certification is one significant aspect of our security commitment to the industry and our community. We will continue to advance our investment and endeavors in improving cybersecurity defense.”
Why Does This Matter?
Out of all the crypto companies in the space, Binance has consistently shipped and iterated faster than almost anyone else. This announcement comes right after Binance successfully opened its futures platform (which saw significant traction in its inception) and their rollout of Binance U.S. Coindesk notes that this accreditation “will likely help reassure users after the exchange was hacked for $40.7 million in bitcoin this May.” CZ’s decision to meet the ISO/IEC 27001 criteria represents the further institutionalization of the space, as well as to show that Binance is taking the necessary steps to comply/mitigate any future regulatory pressure — which is especially timely after the launch of Binance U.S.