Futures contracts on bitcoin cash can be available at a CFTC-regulated exchange by the end of this year or the first quarter of 2020. This will allow institutional U.S. investors to trade on a derivative of the cryptocurrency and bring in more trading volume for BCH overall.
Bitcoin.com Champions Bitcoin Cash Futures
Bitcoin.com is in discussions about listing a bitcoin cash (BCH) futures contract on a new exchange with approval from the U.S. Commodity Futures Trading Commission (CFTC). David Shin, the head of the exchange business at Bitcoin.com, expects the new instrument can reach the market by the end of the year, or the first quarter of 2020, and that it will be cash-settled on day one.
The goal of having a BCH futures contract on a CFTC-regulated venue is to open up the U.S. market so that more institutional traders can gain exposure to the cryptocurrency and thus generate higher trading volumes in total. Additionally, there is interest from some retail brokers in offering trading on such a regulated instrument, and Shin is also in talks with them about the possibility.
“We are in discussion with a US exchange that will shortly be CFTC approved to list a BCH futures contract to create greater demand for BCH and increase trading volumes,” Bitcoin.com CEO Stefan Rust explains. “There are two main reasons behind this. First, with BCH futures, institutions will be able to manage the exposure to market volatility better and therefore protect funds under management better, and hence allocate a larger portion of their funds to BCH. Second, with this product BCH is also accessing a new US financial services market through futures that is CFTC regulated. This is a massive market that’s new to BCH. Both of these drive up volumes which in turn drives up demand for BCH which will lead to an increase in market value. This is largely driven by futures volumes in the US market increasing demand and ultimately the value.”
Regulators Keep US Market Behind in Crypto Adoption
The Chicago Mercantile Exchange (CME Group) does offer financially-settled BTC futures contracts for U.S. investors. However, by global comparison, American regulators have made it very difficult for investors to access the global cryptocurrency market with ETFs and the same is true for derivatives. For example, a number of companies have been working hard to launch regulated physically-delivered bitcoin futures contracts in the U.S., but their efforts have so far been hampered by the CFTC.
Last month the CEO of Ledgerx, Paul Chou, had to retract the news that his company went live with bitcoin futures for retail trading after it received regulatory approval for swaps. Ledgerx launched its institutional trading platform back in 2017 and has been waiting ever since for the specific CFTC approval for the instrument. He also complained that the regulators were not doing their job and threatened to sue the CFTC for anti-competitive behavior and breach of duty.
Another trading platform recently approved by the CFTC for physically-delivered bitcoin futures is TD Ameritrade-backed Erisx. However, the most anticipated venue to enter the market is Bakkt, the digital assets subsidiary of New York Stock Exchange parent, Intercontinental Exchange (NYSE: ICE).
Back in 2018 ICE announced that the Bakkt Bitcoin Daily Futures Contract would start trading on Dec. 12, 2018. This has not happened, and the launch date has been pushed back again and again. The reason for this according to media reports is the necessity of compliance with cumbersome CFTC demands. If nothing changes again, Bakkt is now expected to bring physical delivery futures contracts to market participants in more than 30 countries by the end of 2019.
The International BCH Derivatives Market
Besides some of the biggest players in the traditional finance markets trying to enter the cryptocurrency derivatives business, we have also seen companies from the digital assets industry focus on filling the same niche. Among those crypto trading venues who started offering bitcoin cash derivatives to their traders we can list Bitmex, U.K. FCA-regulated Crypto Facilities, Hong Kong-based Coinflex and Huobi Derivative Market (Huobi DM). While these types of exchanges are a good option for experienced crypto traders to get into highly leveraged long and short positions on BCH, they don’t have the global brand power of being CFTC-regulated, which will serve as a major seal of approval for the cryptocurrency in the eyes of timid investors once they launch bitcoin cash futures.
Bitcoin.com has already been successful in making BCH instruments more accessible to traditional investors around the world. Amun AG, a Swiss company facilitating access to crypto asset investments, announced in July that it had listed the first exchange traded product (ETP) tracking the performance of bitcoin cash on Switzerland’s principal stock exchange. The Amun Bitcoin Cash ETP is a fully collateralized product that is denominated in U.S. dollars and has an annual investor fee of 2.5% that includes custody, insurance, and re-balancing fees. This crypto investment instrument was seeded with 25,000 BCH from Bitcoin.com Executive Chairman Roger Ver.
What do you think about the potential for CFTC-regulated bitcoin cash futures to open up the institutional U.S. market? Share your thoughts in the comments section below.
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