Is Bitcoin growing? Regulated futures explode as investors seek safer driving

LONDON (Reuters) – At the birth of Bitcoin, it was a symbol of counterculture, a rebel currency enjoying near-anonymity and a lack of regulation. A decade later, there are more and more signs indicating that he enters the establishment that his creators sought to subvert.

As cryptocurrency has gained value, large investors, from trading companies to hedge funds, have increasingly turned to regulated exchanges in traditional financial centers. They buy futures on bitcoins to gain exposure to the asset while avoiding hacks and hold-ups that undermine the industry.

The crypto market, often associated with Black Web, Money Laundering and the Wild West, is starting to be discussed by financiers as well as derivatives, hedging instruments and compliance.

Last month, investors invested record amounts in bitcoin futures on regulated exchanges in the United States and Britain, eager for some of the action but seeking the kind of protection which will satisfy their compliance officers.

The price of bitcoins has more than doubled between March and May, a double-digit rise in price trends that is reminiscent of its 2017 bubble, driven by retail investors.

During this period, CME Group Inc.'s average daily futures volume, based in Chicago, increased sevenfold to a record $ 508 million in May. The number of open interest contracts – those that have not been settled – also broke a record.

CME said that Bitcoin's price gains and the subsequent rise in volatility had attracted new investors seeking to protect themselves against risk.

Crypto Facilities, a London-based platform purchased this year for more than $ 100 million from the leading Kraken US cryptocurrency exchange, said daily trading volumes of bitcoins tripled from March to $ 84 million in May .

Intercontinental Exchange Inc. (ICE), owner of the New York Stock Exchange, is a sign of the growth of the consumer market. It plans to offer bitcoin futures in the coming months through a new crypto-trading platform, Bakkt.

"It makes sense that institutional investors want to move in this direction, especially given their size and the magnitude of the issues," said Joel Kruger, currency strategist at LMAX Exchange Group.

COVER INSTRUMENT

Futures contracts – which conclude that buyers and sellers are required to trade an asset at a specified date and price – are considered essential components of any mature market, as they enhance market liquidity and allow investors to bet on the direction of the prices.

"It's a useful hedging instrument," said Daniel Matuszewski, transaction manager at Circle, a cryptographic company backed by Goldman Sachs. "Futures are much easier to trade, much easier to use for hedging, much easier to leverage."

The emergence of a global two-way bitcoin futures market – on onshore exchanges such as CME and offshore stock exchanges – is more regulated and still controls most of the day-to-day billions of dollars. market.

Onshore exchanges – those regulated in established financial centers – are generally subject to strict controls over governance, technology and client verification. They require a high degree of transparency.

Offshore platforms, on the other hand, are generally registered in jurisdictions where the rules are less onerous. They tend to accept the business of investors who can register with little verification of who they are or where their funds come from.

Large investors, subject to strict compliance rules, head to regulated platforms in financial centers such as GCE, according to industry players. More risk-tolerant traders – including North Asian retail investors and companies earning money in crypto-currency, minors to gaming companies – use offshore stock exchanges.

"Offshore stock exchanges are not really stock exchanges – they look more like private markets," said Vladimir Jelisavcic of Cherokee Acquisition trading company in New York.

"THE STARS ARE ALIGNED"

Offshore stock exchanges have been offering bitcoin futures since 2011. One of the biggest, BitMEX, in the Seychelles, said it now accounts for more than 65% of the global cryptocurrency derivatives market . Trade volumes reached $ 4.3 billion in May, he added.

Arthur Hayes, CEO of BitMEX, however, said that large investors are increasingly attracted to onshore scholarships such as CME.

"It's the ideal product (for big investors), it's based on the US dollar, they never have to touch bitcoin, it's paid for financially," he said.

The launch by CME and its rival Cboe Global Markets in December 2017 was the first time that the consumer markets offered cryptocurrency derivatives.

They first faced a lukewarm demand. Cboe said in March, when Bitcoin had an income of less than $ 4,000, he was planning to halt his future, the final contracts expiring this month.

For their part, CME futures have generally experienced low liquidity and high barriers to entry for small investors, said Ricky Li of the Altonomy crypto trader in New York.

The growing gap in the onshore exchange futures market stimulates growing competition and attracts new entrants, such as ICE.

Sui Chung, cryptocurrency pricing manager at Crypto Facilities, said compliance-seeking institutional investors have been evaluating for a long time the various futures products offered by regulated exchanges, while waiting for more. Prices soar to allow them to enter the market.

"It's the first time these stars have aligned," he said.