May 12, 2021

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What CME Micro Futures Mean for the BTC Market

3 min read

Derivates marketplace Chicago Mercantile Exchange (CME) Group today launched micro BTC futures at one tenth the size of one BTC. The new offering aims to attract priced-out retail investors and flexibility-seeking institutional investors.

What it boils down to is that BTC futures contracts are now available to investors at $6,660 in today’s market—a far cry from $290,000, the worth of non-micro BTC futures.

“When you look at the price of BTC and how much it’s appreciated over the last several months, current future contracts have become prohibitively expensive” Tim McCourt, CME Group global head of equity index and alternative investment products, told Decrypt.

Futures contracts are obligations on traders to buy or sell an asset at a certain price on a given future date. If you’re planning on buying 1 BTC at today’s price of $56,660 in a couple of months, then you can lock in that price through a futures contract. That’s good for hedgers.

But futures contracts are also good for speculators. They can also be bought and sold like any market-traded asset, allowing bets on the price difference between the contract price at the time of signing and the real market price at that given future date. The price difference makes a sweet profit for the arbitrageur who makes a correct bet.

To play the futures game though, you have to be able to afford them. The original CME BTC futures contract, launched in December 2017, is worth five BTC—not a huge deal then, but it’s around $290,000 today. In contrast, a micro BTC future at one-tenth of one BTC comes down to $6,000.

Micro contracts appeal to retail traders priced out by the original offering, but it’s not just about affordability. McCourt said there’s also been interest from institutional users—including crypto-native trading firms—who wanted more wiggle room in their trading strategies. They no longer have to invest in $290,000 increments when there’s an option of $6,000.

But if BTC’s price keeps climbing even higher, the current micro BTC contracts could also price out a lot of people in the future. CME would consider offering differently-sized contracts if that were to happen, said McCourt.

In February, CME launched ETH futures, and last month recorded 5,500 contracts trading. ETH futures contract worth 50 ETH seemed like the right size, “even a relatively small contract,” said McCourt, but ETH’s price has now more than quintupled. Each contract’s now worth $115,000 in today’s price. It’s still small potatoes compared to BTC futures of course, but micro ETH futures might also be on the horizon, if ETH’s meteoric price rise continues.

Here’s One Crazy Stat About CME Offering ETH Futures

Today’s launch of micro BTC futures saw the equivalent of 6,241 BTC trade, which McCourt described as a hugely successful first day.

In an earnings call last March, CME senior managing director Sean Tully said the marketplace generated $4.7 million in revenue from BTC futures offering in this year’s first quarter. Micro futures may add a major spike to that figure, if today’s success is any indication of their future.

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.

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