The introduction of Bitcoin futures by Cboe Global Markets Inc. in December definitely added some legitimacy to the digital asset for institutional investors. After the successful launch of Bitcoin futures trading, the logical next step is establishing futures trading for other cryptocurrencies, such as Ethereum, Ripple, and Litecoin. Back in January the president of Cboe, Chris Concannon, hinted at the possibility of creating futures contracts for other cryptocurrencies in the future. He added that this would not come to fruition until an overhaul of Cboe’s core trading software was completed.
On Tuesday, Cboe announced that their core software upgrade was complete. This brings them one step closer to the introduction of futures contracts for other cryptocurrencies. The new platform reduces trading latency by as much as 80%. This is significant because it will attract more market makers that can help to add liquidity to the market, reducing volatility in the prices of futures contracts. While the added liquidity in the market for futures contracts does not directly affect the volatility of Bitcoin prices, movements in prices will likely become more linked to futures contract fluctuations as more money flows into the market.
More importantly, a more stable futures trading platform with greater capacity for liquidity opens up the possibility of new crypto futures. Cboe is most concerned with meeting regulations and protecting investors. Prior to the recent software upgrade, their futures trading platform did not operate with enough efficiency to support futures trading for other lower market cap cryptocurrencies without exposing investors to excessive risk.
It is surprising to many that Cboe managed to gain SEC approval for derivative products such as futures contracts before Bitcoin ETFs were approved. Relatively speaking, derivatives are much riskier financial instruments when compared to ETFs, though they do not hold the same potential for creation of systemic risks within the cryptocurrency market. Back in March, the Gemini cryptocurrency exchange’s application for a Bitcoin ETF was rejected by the SEC. Many other entities have applied for the creation of Bitcoin and other crypto ETFs since, and all have been rejected.
While the SEC is still very hesitant to approve new financial products linked to cryptocurrency, investors can definitely expect some new developments in the areas of derivatives and ETFs in the next six to twelve months. Futures products for cryptos other than Bitcoin will likely be the next step in institutional adoption of a new asset class.
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