Bitcoin Rallies Above $19,000 One day before the Launch of CME’s Futures Contracts

Today it is exactly one week to the launch of CBOE futures contracts. The arrival of Bitcoin futures contract has resulted in a huge participation of retail and institutional investors alike. On the very first day, the CBOE Bitcoin futures contracts received a huge thumbs-up from investors and a huge number of orders piled up in just moments after launch causing the CBOE website to crash.

Tomorrow, as per the schedule, CME is to launch its Bitcoin futures contracts and we can see that the excitement has already chipped-in the Bitcoin market. In just past 24 hours Bitcoin has rallied by more than $1000 to hit its new all-time high of $19,641.03 as per our data at the press time. With this, the Bitcoin market cap stands to $325 billion which has now crossed the market cap of some famous organizations like Bank of America at $302 billion, as well as Wells Fargo ($295BN), Wal-Mart ($288BN), and Visa ($257BN).

However, now that most of you are getting familiar to CBOE’s futures contracts, its rules and size of the order, there are a few differences in the CME futures contracts that we would like you to know.

Both CBOE’s and CME’s contracts are cash settled which means that you can’t take delivery of Bitcoins, however, there is a major difference in the contract size of the two. The contract size of CBOE is fixed to a minimum purchase of one Bitcoin, while for CME the contract size if fixed to buy minimum five Bitcoins.

This means that suppose Bitcoin is trading at $19,000, CBOE’s contract size has the estimated value of $19,000, but for CME futures contract the estimated value is $95,000. Moreover, the CBOE exchange offers 44% initial margin of the estimated value. This means for $19,000 bitcoin price, investors will get an initial margin of $83,00 approximately. On the other hand the initial margin of CME is close to 47% but since the order size is 5 minimum Bitcoins, this amounts to approximately $41,500.

So which exchange is best certainly depends on the quantity one holds and the quantity one wants to hedge. Also, one major difference is that the CBOE exchange will use Bitcoin price obtained from the Gemini exchange, owned by Winklevoss brothers who recently joined the billion-dollar club earned through Bitcoin investments. While on the other hand CME group will use the Bitcoin Reference Rate (BRR) for trading. BRR is once-a-day reference rate of the U.S. dollar price of bitcoin obtained from four exchanges Bitstamp, GDAX, itBit and Kraken.

Because of this reason, analysts believe that CME’s Bitcoin futures contract can attract more institutional demand. Matt Osborne, chief investment officer of Altegris said “The CME contract is based on a broader array of exchanges. So there is a possibility that the CME contract may generate more interest and more volume.”