27 January 2022

City AM: CME crypto futures

Global investment banks Citi Group and Goldman Sachs are reportedly among institutions mulling offering clients exposure to crypto futures products traded on the CME amid strong demand.

Retail investors are also getting in on the action at the world’s largest derivatives exchange. The CME revealed that trade volumes for micro ether futures have surpassed 500,000 contracts since they launched in early December 2021 with daily trade volumes topping 50,000 this week.

“A central tenant of our product development process is working with customers to identify clearly articulated demand points,” said Tim McCourt, the CME’s global head of alternative investment products, in comments to City A.M..

“These contracts are providing one more way for both financial institutions and sophisticated, active retail traders to gain exposure,” he added, noting that micro bitcoin and ether contracts have taken the exchange’s crypto offering “to the next level.”

Futures contracts give investors exposure to crypto through a regulated exchange without needing to hold the underlying digital assets.

While the CME launched Ether futures contracts at a size of 50 ETH (£96,000), skyrocketing crypto prices meant that retail traders were quickly priced out. By contrast, crypto micro futures can be purchased at one tenth of the price of a single Bitcoin (£28,180) or Ether.

Clearly the strategy paid off. McCourt disclosed that 400,000 retail accounts are actively trading at the CME, 150,000 of which were new to the group’s markets in 2021. Almost a third of clients who picked up a Micro Ether contract were trading their first ever micro contract with the exchange.

“Retail participation in CMEs market is a multi-year growth trend,” said McCourt, noting that the CME hopes to expand its crypto offering once the US’ commodities and futures regulator (CFTC) provides clarity on digital assets other than Bitcoin and Ether.

In Europe, surging retail adoption of digital assets has also caught the attention of regulators. Last week the Financial Conduct Authority published draft proposals for rules to ban crypto adverts targeting a mass audience of inexperienced investors. Meanwhile, Russia’s central bank has recommended a sweeping ban on crypto trading and mining.

Although the shadow of a regulatory crackdown hangs over European digital asset markets Valour, a company which issues crypto exchange traded products (ETPs), wants to increase access to regulated crypto products.

“We’re seeing huge demand for digital assets on regulated exchanges across Europe,” said Valour chief executive Tommy Fransson. “Exchanges are responding by accepting more underlyings, which is further boosting access to the asset class.”

City AM

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