Editor’s note: This story has been updated with additional details.
CME Group CME, the world’s largest futures exchange, is gearing up to introduce Bitcoin BTC/USD trading, seizing the opportunity presented by the growing appetite for cryptocurrencies among Wall Street’s money managers.
What Happened: The Chicago-based CME has been engaging in discussions with traders interested in buying and selling bitcoin on a regulated platform, Financial Times reported on Thursday, quoting three insiders familiar with the negotiations.
This initiative, though not yet finalized, signals a significant step by major Wall Street firms into the realm of digital assets.
It follows the U.S. Securities and Exchange Commission's January approval of stock market funds that directly invest in bitcoin.
CME has not provided any comments on the matter.
Adding spot Bitcoin trading to CME’s offerings, which already include Bitcoin futures, would simplify the execution of basis trades for investors.
Basis trading, a strategy popular among professional Bitcoin traders and commonly used in the U.S. Treasury market, involves borrowing money to sell futures while buying the underlying asset, profiting from the price differences.
CME venues currently handle the majority of Treasury basis trades.
Bitcoin has garnered increasing support from some of the world’s largest financial institutions, who have shifted from skepticism to advocacy due to the cryptocurrency's significant recovery from its 2022 lows to record highs earlier this year.
The digital asset's growing acceptance and regulatory crackdowns on illegal market activities have further bolstered its legitimacy as a tradeable asset.
Despite a 20% drop in value from its March peak of over $73,000, Bitcoin-related exchange-traded funds (ETFs) have emerged as the fastest-growing ETFs in history.
Hedge funds like Bracebridge Capital and pension funds such as the Wisconsin Investment Board are among the major investors, pouring over $10 billion into Bitcoin-focused vehicles managed by firms including BlackRock BLK, Fidelity and Ark.
BlackRock CEO Larry Fink expressed his “long-term bullish” stance on Bitcoin in March.
Why It Matters: CME has benefited significantly from renewed institutional interest, surpassing Binance to become the world's leading bitcoin futures market. It currently hosts approximately 26,000 open positions worth around $8.5 billion, more than double the amount from a year ago.
The proposed spot trading service would be managed through the EBS currency trading venue in Switzerland, known for its stringent regulations on crypto asset trading and storage.
The track record of large traditional exchanges in trading spot cryptocurrencies has been mixed.
While Deutsche Börse launched its digital assets market this year, CME’s rival, CBOE Global Markets, recently announced the closure of its spot market business due to unclear U.S. regulations. This highlights the competitive landscape and threats posed by names like Coinbase COIN and Robinhood HOOD, which are rapidly growing their crypto offerings, such as Robinhood expanding its product line in the European market.
One crypto trading executive raised concerns about the potential inefficiencies of CME’s bitcoin trading business operating across two markets—CME in Chicago and EBS in Switzerland.
“I struggle to see how they would get all the efficiencies available to them,” he remarked.
However, he acknowledged that CME’s move indicates growing comfort among large regulated exchanges with the infrastructure for trading digital assets, including the secure storage of coins.
This evolution in the crypto market infrastructure may soon enable exchanges to accept crypto-related collateral, such as tokenized money market funds, for more timely margin calls.
What’s Next: The developments in CME Group's bitcoin trading plans will be a key topic at Benzinga’s Future of Digital Assets event on Nov. 19.
The event will explore the expanding role of institutional investments in digital assets and discuss the future trajectory of the cryptocurrency market.
Read Next: Crypto Traders As Socially Valuable As Escorts To Brits, Study Finds
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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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