Is Cryptocurrency In For Another Volatile December?
The final month of the year has historically been a heady time for cryptocurrency markets, and this year is looking like it will provide similar excitement with the emergence of bitcoin options trading on major U.S. exchanges.
Decembers To Remember
For context, December 2017 saw the introduction of bitcoin futures at both the CME and CBOE, as well as the crypto’s subsequent all-time-high of $20,000. Fast-forward 12 months to December 2018, and most major cryptos were back to early-2017 levels, erasing all the gains from the previous two years.
This December could see another new catalyst for outsized price moves across cryptocurrency with the introduction of bitcoin options trading. While the CME doesn’t plan on introducing bitcoin options contracts until January 2020, ICE-backed cryptocurrency exchange Bakkt is rolling out the first regulated options contracts for bitcoin futures Monday, December 9.
The initial launch on Bakkt and the upcoming rollout to the CME marks another notable step forward in the broader acceptance of digital asset trading, and it has already generated a fair amount of attention from traders. The amount of open interest in bitcoin futures contracts on Bakkt hit an all time high of $6.54M iearlier this week, according to a post from an automated volume-tracking twitter account.
Cash, Not Crypto
The introduction of options trading promises to inject fresh capital into the cryptocurrency market, and the addition of options data should serve as another key indicator into the potential volatility of bitcoin. However, cryptocurrency traders may have to wait and see how Bakkt’s options contracts play into the market—Bakkt has primarily appealed to traders as a broker for purely cash settlements, though it does offer physical contract delivery. Since the platform launched futures trading earlier this year, it has so far only delivered a small portion of physical bitcoins upon expiration, delivering just 17 BTC through all of October.
Traders will ultimately have to wait and see whether the addition of bitcoin options contracts to Bakkt and CME injects more capital and volatility into the cryptocurrency market, or whether it simply allows for a new means of speculation. Other examples of derivatives, particularly futures and leveraged forex pairs, have already found success among active traders. For now, cryptocurrency traders should wait and see how much liquidity flows into the newly minted options market.
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