The Future(s) of Bitcoin

CME Group

The Chicago Mercantile Exchange (CME) recently announced that they have decided to offer derivative products based on Bitcoin, specifically starting with futures contracts. This is an important milestone in the development of the cryptocurrency markets as a major financial institution such as CME has taken it upon themselves to recognize the validity of Bitcoin and incorporate the growing cryptocurrency market into their line up of financial instruments.

While this move is an exciting development for crypto enthusiasts, it has not hit the papers without a considerable amount of skepticism and criticism. Many people versed in the issue are arguing that CME risks destabilizing their entire financial foundation by committing to such a risky financial instrument; if there is a severe price movement in Bitcoin, CME could risk becoming insolvent as a result of their obligations to holders of futures contracts. One solution to this concern that has been floated around is requiring CME to isolate any financial derivatives underwritten in Bitcoin or, eventually other cryptocurrencies, from other financial offerings. With such a clear separation in place, CME would be able to reassure investors that drastic swings in the price of Bitcoin will not affect other, more traditional, assets.

Ultimately, as cryptocurrencies continue to become more incorporated into our modern financial world, traditional institutions will eventually have to assume the risk of incorporating them into their offerings and daily practices. That’s not to say that such institutions should take on exorbitant risk for the sake of pushing the cutting edge, but it’s encouraging to see CME begin to take reasonable steps to catch up to the popular pressure of global crypto markets. Other clearinghouses and established institutions will certainly be keeping a close watch on CME to see how this new venture goes, and assuming no catastrophic consequences come as a result, they will surely be eager to follow suit in due time.

What do you think about this recent development? Is CME taking on unreasonable risk by offering Bitcoin futures? Is it too early for such an endeavor, or has Bitcoin proven stable enough to be worthy of such institutionalization? Comment below!