Don't Expect the Crypto-Futures Revolution to Stop at Bitcoin

(Bloomberg) -- Cboe Global Markets Inc. is exploring futures on other cryptocurrencies after becoming the first U.S. exchange to offer Bitcoin contracts last month.

“You look at the entire crypto space and you look at what other products have the liquidity and the notional size, a derivative makes sense,” Chris Concannon, Cboe’s president and chief operating officer, said at a press briefing in New York on Wednesday. Cboe won’t make a move, however, until its futures exchange upgrades its core trading software with the technology it acquired with Bats Global Markets last year, he added.

The exchange has first thrown its weight behind another kind of product, Bitcoin exchange-traded funds, which so far remain in limbo. Tyler and Cameron Winklevoss, co-founders of one of the largest Bitcoin exchanges, Gemini, proposed an ETF based on the digital currency, which would be listed on one of Cboe’s equity exchanges. The U.S. Securities and Exchange Commission rejected the bid in March, but the decision is being appealed.

Gemini is Cboe’s partner in another area: Setting the settlement price for its futures. Cboe’s January contracts expired Wednesday, and Gemini’s auction set the settlement’s reference price at $10,900, seemingly without a hitch.

Ed Tilly, Cboe’s chief executive officer, said that regulators would be paying close attention to the first settlement in bitcoin futures as they assess exchange-traded products.

“Before you get into mainstream ETPs, we need to get through a series of settlements before that makes sense to regulators,” Tilly said at the event Wednesday. “Those boxes have to be checked before there’s a mass roll-out of exchange-traded products.”

The SEC has yet to approve a single Bitcoin ETF, and it pushed back further against the proposed products this month. The regulator told several fund companies to pull their applications for ETFs based on Bitcoin, citing concerns about investor protection, Bloomberg News reported. Bitcoin’s price has fallen dramatically in 2018, dropping as low as $9,186 on Wednesday and extending a monthlong rout to more than 50 percent. It surged 1,400 percent in 2017.

The SEC is taking a careful approach to derivatives based on the cryptocurrency, Concannon added.

“They’re very cautious when it comes to Bitcoin,” he said. “It’s kind of a lightning rod.”

--With assistance from Lananh Nguyen

To contact the reporter on this story: Annie Massa in New York at amassa12@bloomberg.net.

To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net, Dave Liedtka

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