Bakkt's Slow Start Doesn't Mean Bitcoin Futures Have Flopped

The Chicago Mercantile Exchange announced Friday it is preparing to offer options trades on its bitcoin futures contract.

Why should it? CME's bitcoin futures market represents a tiny percentage of its overall volume.

CME may be feeling a shade of anxiety about its leadership position in regulated crypto derivatives markets, with Bakkt rolling out a regulated bitcoin futures contract this week that, unlike the Chicago exchange's, is settled in actual bitcoin rather than cash.

First-day volume in the monthly contract was just 71 BTC. That's rather anemic, compared with the start of the CME product in December 2017, which isn't necessarily apples to apples, given CME futures launched near bitcoin's all-time highs.

The first regulated bitcoin futures came in December 2017, just before bitcoin's price began a long slide down 83 percent from its all-time high.

Bitcoin futures are structured much like orange juice concentrate futures, but everyone knows that orange juice concentrate, when mixed with more volatile things can become rather flammable.

There are important qualities that set bitcoin apart from other asset categories and these qualities of the underlying are taken into account by institutional investors evaluating bitcoin derivatives.

There may not be natural hedges in a bitcoin futures market.

The CME futures volume is as good a guide as any to investors' progress along that road. You may have seen charts showing the rise in CME volumes in May. That rise also coincided with a twofold increase in the price of bitcoin.

Measured in bitcoin terms, CME futures volume surged in July and is now back trading at a modest growth rate over Q1 levels.