The largest options group in the world, CME Group, announced it will be trading Bitcoin futures starting in Q4 of 2017.

CME Group CEO Terry Duffy said in the announcement, “Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a Bitcoin futures contract… As the world’s largest regulated FX marketplace, CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities.”

Futures trading is an investment vehicle used by larger investors to minimize risks by agreeing to buy or sell a commodity at a set price in the future. In agreeing to buy or sell a commodity at a set price in the future a company or investor can minimize or “hedge” their risk profile.

Given the explosive price fluctuations of Bitcoin, some investors may prefer to hedge their risks through futures rather than simply purchase Bitcoin and be subject to wild price movements.

Bitcoin price reaches new highs

As a prime example of Bitcoin’s price fluctuations, the value of Bitcoin has risen by over $2,000 (CAD) since CME Group’s announcement.

Although the recent price spike coincides with the day the announcement was made, it is hard to pinpoint the exact causes of the price increase given Bitcoin’s volatility and other factors such as Bitcoin’s upcoming hard fork, Segwit2x.

On the back of Bitcoin’s price growth, CME Group is not the first company to announce it will offer futures trading. Earlier this month, for instance, start-up LedgerX began trading Bitcoin futures and sold $1 million dollars worth of derivatives in their first week.  

More companies across the globe are expected to make similar announcements for plans to develop their own futures markets for Bitcoin, and with that will come large sums of institutional investment money.

Decreasing risk and increasing stability

Up until now a major factor that has kept many large institutional investors from investing in Bitcoin has been its volatility, since the first goal of institutional investors is to minimize risk.

Now that the risk is more controlled with futures investments, institutional money may be more comfortable with investing in Bitcoin. Adding in the credibility brought by a name like CME Group could also help to stabilize the market, as the market now has a signal that if things go bad there is a large institutional actor backing the concept.

Since inception cryptocurrency enthusiast have envisioned a world made better by a decentralized cryptocurrency economy, and announcements like this help bring us closer to those goals by bringing a once-obscure technology into the everyday lives of more people.

 

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