Bitcoin — the hottest trade of 2017 — is now easily available to individuals and businesses courtesy of the launch of the first futures contract on Chicago Board Options Exchange (CBOE - Free Report) in the evening of December 10.
Bitcoin futures, expiring in January, spiked more than 20% to a record high of $18,000 in just four hours of its debut and triggered a so-called circuit breaker two times. Under CBOE rules, the circuit breaker has been designed to reduce price volatility wherein 10% movement in prices triggers a two-minute trading halt while a 20% move triggers a five-minute halt.
On the first full day of trading, bitcoin futures was up 19% at the close of $18,545. The digital currency itself rose more than 14% to $17,261, according to CoinDesk's bitcoin price index (read: Bitcoin on Fire: What Investors Need to Know).
This is the first time that investors are getting exposure to the bitcoin market via a large, regulated exchange, leading to increased investment in the booming cryptocurrency with a growing number of retail investors. It provides investors a way to buy and trade in the digital currency, which is otherwise not readily available.
A Push to ETFs
This has led to renewed interest to create ETFs tied to the cryptocurrency. This is especially true as two issuers refiled their applications for futures-based bitcoin ETFs with the Securities and Exchange Commission (SEC). REX refiled for two ETFs, namely REX Bitcoin Strategy ETF and REX Short Bitcoin Strategy ETF while VanEck refiled for the VanEck Vectors Bitcoin Strategy ETF. These applications were previously withdrawn by issuers following the rejection by the SEC or lack of regulation of the bitcoin spot market and unavailability of bitcoin futures contracts (read: Bitcoin Skyrockets; Will ETFs Follow Futures?).
The CBOE is not the only exchange listing futures contracts. The Chicago Mercantile Exchange (CME - Free Report) will begin initial listings of bitcoin futures contracts on Dec 18 while Nasdaq plans to launch bitcoin futures as early as in the second quarter of 2018. CME’s contracts will also be cash-settled and are based on an index from four bitcoin exchanges — Bitstamp, GDAX, itBit and Kraken. The contracts will be available on the CME Globex electronic trading platform, and for submission for clearing via CME ClearPort, effective Dec 17 for a trade date of Dec 18.
In the race to bitcoin trading, the Tokyo Financial Exchange is also preparing to launch its own bitcoin derivatives futures products. All these will pave the way for bitcoin ETFs.
ETF Industry Growing
The ETF industry has seen explosive growth in terms of both AUM and launches thanks to unique strategies, creativity, transparency, diversification benefits, enhanced tax competences, low turnover and low cost. According to data from Credit Suisse, inflows for ETPs (including ETNs) topped $424 billion this year through November and have overtaken other investment vehicles like mutual funds, which saw inflows of $91 billion in the same time period.
Another report from research firm ETFGI, global ETFs and ETPs assets grew more than a trillion dollars in less than a year to $4.60 trillion by the end of October from $3.396 trillion at the end of 2016. Further, it gathered $600 billion in new assets in the first 11 months of 2017. This is up 53.6% from the net inflows for the whole of 2016 and almost double the inflows of $326 billion seen during the 11 months of last year (read: November ETF Asset Report: U.S. Tops, Treasuries Flop).
Given this, the creation of the first bitcoin ETF would be a historic moment for mainstream cryptocurrency adoption and will likely get the first-mover advantage in terms of trading volume.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>