The curious case of Bitcoin futures and the CBOE

Bitcoin CBOE

The Chicago Board Options Exchange (CBOE) has decided to stop adding new Bitcoin futures contracts, but hasn’t explained why.

The CBOE, which is the largest Options Exchange in the United States, had been offering cash-settled contracts that institutional and accredited investors could buy.

The futures contracts were the first of their kind that allowed institutional organisations to bet on the price of Bitcoin rising or falling.

The CBOE was the oldest institutional exchange to offer Bitcoin contracts and it paved the way for Bitcoin to be traded with traditional contracts such as agriculture, currencies, metal, energies, equity indexes and interest rates.

Why did the CBOE step away from Bitcoin futures?

The CBOE has declined to comment on exactly why they have decided to cancel the Bitcoin futures contracts. It has stated, however, that it has “not closed the door on digital currencies.”

Two obvious reasons present themselves for CBOE’s decision of cancelation:

  • Firstly, there has been a consistent declining volume of Bitcoin contracts traded through their exchange since they rolled out the contracts in December 2017 around the time Bitcoin hit historic all-time highs of 20,000 USD.
  • Secondly, CBOE has also been at the spearhead of pushing the US Securities and Exchange commission (SEC) to approve a physically backed Bitcoin ETF in the United States. Despite CBOE’s reputation as the largest options trader in the United States, the SEC has rejected or delayed these proposals.

A positive sign for Bitcoin?

Historically, financial institutions entering and exiting asset classes in the past have acted as market correlated events, signalling the peak of a bull or bear market.

Some are heralding this announcement from CBOE as a bullish sign that the bottom of the Bitcoin market cycle is close, as the market price of Bitcoin has been very unreactive as a result of the recent news.

Comparison to grain in the 1840s

This is not the first-time futures contracts have been halted on CBOE. The types of
contracts offered by CBOE known as futures contracts were first traded in the United
States during the 1840s. These first futures contracts were correlated to the price of
grain bushels.

Due to the ultimate price manipulation of grain as a result of the introduction of grain
bushel futures, the US government of the 1840s had to subsequently intervene and
temporally halt futures contracts of grain trading.

During the early 1980s, agricultural futures contracts experienced a 50% drop on CBOE
and by 1985 this volume had dropped to less than one fourth of all trading on CBOE.

The characteristics of Bitcoin, where fluctuations in price of more than 75% are considered normal, both to the upside and downside, heralds a new type of asset class that our world’s traditional institutional exchanges such as the CBOE have never seen before.

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