On Monday, the US Commodity Futures Trading Commission announced that it had approved a request from Cboe, one of the largest US options exchanges, to offer margin futures contracts for Bitcoin and Ether.
At a time when segments of the US cryptocurrency industry are in retreat offshore amid accusations of “regulation through enforcement,” Cboe Digital President John Palmer described the development as a step forward during a period of uncertainty.
“We are seeing an expansion of the US framework, not a contraction,” he said. luck In an interview on Monday. “This is a really good representation of that hard work across both sides of the fence, both on the Cboe Digital side but also on the regulator side.”
Futures are a type of derivatives contract, where customers speculate on the price movements of assets such as Bitcoin and Ether — a popular tool for institutional investors, but growing in popularity among retail investors, especially in the cryptocurrency space.
While Cboe Digital previously offered cryptocurrency futures contracts, it did not allow margin trading. In practice, this meant that traders had to post the full price of bitcoin to buy or sell the futures contract. With margined contracts, they only need to carry over a fraction initially, which requires less money up front and allows strategies to earn higher returns on deployed capital.
While other platforms, including CME Group, also offer margin futures contracts for crypto assets, Ballmer said Cboe’s new approval is unique because it also offers spot trading under the same entity, where users trade on the current price of assets such as Bitcoin and Ether.
As he explained, this arrangement could be beneficial to traders such as market makers – who provide liquidity to exchanges – as well as other clients looking for greater efficiencies for other strategies such as fundamental trading, where users look for price differences between spot and futures contracts.
Exit from FTX
As Ballmer points out, Cboe’s model bears a stark contrast to a proposal made by the failed cryptocurrency exchange FTX, which sought approval of a different approach with the futures CFTC. With Cboe, users cannot purchase futures contracts directly from the platform, but must instead go through futures commission dealers, or FCMs – brokers who buy or sell contracts on behalf of clients.
in 2022 applicationFTX has sought to cut out the middleman and allow clients to post margin directly to FTX without any intermediaries. The process, known as non-mediation, has been widely criticized by players in traditional finance for giving retail investors easier access to risky investment products and for putting more responsibility in the hands of the platforms.
“This is traditionally a very focused model,” Palmer said of Cboe’s approach. “This model has stood the test of time.”
In a statement released after Cboe’s endorsement was approved, CFTC Commissioner Kristi Goldsmith Romero concurred, citing Cboe’s more than 50 years of experience operating exchanges.
“The proposed FTX model has not been approved by the Commission, but it does jeopardize priority client bankruptcy, other client protection measures, and financial stability,” it said.
The future of cryptocurrency in the United States
Cboe’s approval comes as crypto firms including Coinbase and Gemini are moving outside to launch derivatives exchanges. While noting that their main motivation is to introduce a popular type of crypto derivatives contract that is not approved domestically, called perpetual, Ballmer applauded the work of the US regulators.
“From our perspective in the US, whether or not there is regulatory clarity regardless of who the regulator is, we feel very comfortable working with them to continue to grow the asset class responsibly,” he said. luck. He called the approval “a win for American industry.”
Cboe Digital plans to launch its margin futures contracts for Bitcoin and Ether in the second half of 2023.