CME futures exchange plans to launch bitcoin trading

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CME Group, the world’s largest futures exchange, is planning to launch bitcoin trading, aiming to capitalize on growing demand this year among Wall Street money managers to gain exposure to the cryptocurrency sector.

The Chicago-based group has been in discussions with traders who want to buy and sell the cryptocurrency on a regulated market, according to three people with direct knowledge of the talks.

The plan, not yet finalized, would mark a further encroachment by the main Wall Street institutions into the digital assets sector following the decision of the US Securities and Exchange Commission approval in January of stock exchange funds that invest directly in bitcoin.

The CME declined to comment.

The introduction of bitcoin spot trading on the CME, which already hosts bitcoin futures trading, would allow investors to more easily make so-called basic trades. A common strategy among professional bitcoin traders and a staple of the U.S. Treasury bond market, basic trading involves borrowing money to sell futures while buying the underlying asset and extracting gains from the small gap between the two. Most of the Treasury’s basic operations take place in ECM locations.

Some of the world’s largest financial institutions have turned from skeptics to supporters of bitcoin, thanks to its strong rebound from its 2022 low to hit a record high earlier this year, as well as its growing acceptance among investors as an asset marketable and regulators’ crackdown on illegal market activity.

Although the token has lost a fifth of its value since its March peak above $73,000, exchange-traded funds linked to the coin have become the fastest-growing ETFs of all time.

Hedge funds, including Bracebridge Capital, and pension funds, such as the Wisconsin Investment Board, are among the large investors that have poured more than $10 billion in assets into vehicles run by asset managers including BlackRock, Fidelity and Ark. In March, Larry Fink, the chief executive of BlackRock, said he was “long-term bullish” on bitcoin.

CME has been one of the biggest beneficiaries of the wave of renewed institutional interest, overtaking Binance as the world’s largest bitcoin futures market, as traders look to profit from the coin’s volatility.

CME, which caters mostly to hedge funds and proprietary traders, has about 26,000 open positions, worth about $8.5 billion, on its Chicago market, more than double the amount a year ago.

Its potential spot trading business would be run through the EBS currency trading venue in Switzerland, which has extensive regulations governing the trading and storage of cryptocurrencies, the people said.

Large traditional exchange operators have a patchy record in spot cryptocurrency trading. Deutsche Börse opened its own digital asset market this year, but CBOE Global Markets, the CME’s city rival, last month said it would close its spot market operations, blaming a lack of clear U.S. regulation.

One cryptocurrency trading executive wondered whether CME could build significant market share if its bitcoin trading business operated on two exchanges, CME in Chicago and EBS in Switzerland. “I struggle to see how they could get all the efficiencies available to them,” he said.

He added that the biggest benefit of CME’s move was that large regulated exchanges were becoming more comfortable with the infrastructure for trading digital assets, such as coin security.

This means exchanges may soon accept cryptocurrency-related collateral, such as tokenized money market funds, to make more timely margin calls, he said.

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