The CME Group will launch a Micro bitcoin futures contract, based on one-tenth of a whole BTC.
These contract values will be based on 10% of one bitcoin. This is a cost-effective solution to hedging with the cryptocurrency, which has shot up in price by over 1,000% since last year.
— CME Group (@CMEGroup) March 30, 2021
CME Bitcoin — Less is More
The smaller contract appears to be a bid to make bitcoin derivatives more accessible. Tim McCourt, CME Group Global Head of Equity Index and Alternative Investment Products, said of the new product,
“The introduction of Micro Bitcoin futures responds directly to demand for smaller-sized contracts from a broad array of clients and will offer even more choice and precision in how participants can trade regulated Bitcoin futures in a transparent and efficient manner at CME Group.”
The CME Group runs a bitcoin derivatives marketplace. According to the press release, about 69,000 bitcoins have been traded in contracts daily since the start of 2021. About 38,400 ETH have been traded in its ether contracts since its launch on Feb. 8.
Micro Bitcoin Futures (MBT) launch on May 3 with a contract value equal to 1/10 a bitcoin complementing the current contract (BTC) that is equivalent to 5 Bitcoin. More precision, choice, and flexibility for your bitcoin trading. https://t.co/DsvjFoGuOM
— Tim McCourt (@TimMcCourtCME) March 30, 2021
The contract still has to undergo regulatory approval, but this will likely only be a formality. At $6,000 per contract, this is far more affordable than the notional value of the $300,000 regular bitcoin contract. McCourt also said that this should bring new entrants to the market, with buyers expressing enthusiasm already.
CME is one of the larger platforms for bitcoin futures. Its open interest currently stands at around $2.74 billion. For a short time in January, it was the biggest bitcoin Futures exchange. The bitcoin micro futures contract will undeniably boost numbers on the exchange.
Crypto Derivatives Looking Strong
The derivatives market is growing increasingly popular as cryptocurrencies have become legitimate in the eyes of incumbents. Professional investors have taken to derivatives vehicles to hedge against potential losses.
Retail investors have done the same, though it can be a dangerous game for those who are inexperienced. The UK government banned the sale of crypto derivatives to retail consumers. The US CFTC also charged the BitMEX platform with illegally running a derivatives platform.
But almost everywhere else, derivatives are taking off. Several platforms focused on the derivatives market are in the works, including Injective, Kine Protocol, and the Vega Platform. The explosion of such platforms indicates that there is a massive demand for them.