The world’s second-largest stock exchange will launch its own Bitcoin futures in the first half of 2019, said vice president of Nasdaq’s media team Joseph Christinat, noting that at this stage, the exchange is waiting for the decision of the Commodity Futures Trading Commission (CFTC). According to Christinat, CFTC has no reason to deny Nasdaq listing of derivatives for Bitcoin since the new exchange product meets all the requirements of the regulator. What are the critical differences between Nasdaq contracts and those offered by CME and CBOE, and how will they affect the digital assets market?
Crypto Futures 2.0
The Bloomberg publication reported that the Nasdaq Stock Exchange was preparing to launch its own Bitcoin futures contracts for the first time, citing two sources familiar with the matter. The November 27 article states that this initiative will be implemented through a partnership with the investment corporation VanEck Associates, which will be responsible for providing a Bitcoin price index based on several exchanges.
During the panel discussion at the Consensus: Invest conference, VanEck’s head of digital assets strategy Gabor Gurbacs shared the plans of the two companies to launch “regulated cryptocurrency futures contracts 2.0.” As noted by Gurbacs, their goal is to provide Nasdaq customers with transparent, regulated, and traceable products based on digital assets. To this end, VanEck actively worked with the CFTC to ensure that new products comply with all the requirements of the country’s financial regulator. Thanks to this, the company was able to develop new standards for the storage and control of digital products.
In a separate interview with CoinDesk, Gurbacs spoke in more detail about the launch of a new product. The representative of VanEck proposes to consider the upcoming futures contracts of a new type as an “upgrade” of the current regulatory standards intended to control the trade in derivatives based on Bitcoin. The SMARTS control system developed by the Nasdaq exchange will be used to implement this initiative. This system is based on many different algorithms that will monitor suspicious activity in the futures market, such as spoofing or wash trading. Thus, SMARTS will act as a “big police engine” and ensure fair and orderly trade, as Gurbacs explained.
Also, the MVIS index developed by VanEck will be used to launch the next-generation futures contracts. The price of derivatives for digital assets will be formed based on this index.
Key Differences of Bitcoin Futures of CME, CBOE, and Bakkt
As of today, the CFTC approved trading in two Bitcoin-based derivatives: the first was launched by the Chicago Board Options Exchange (CBOE) and the Winklevoss brothers’ Gemini crypto exchange, and the second by the Chicago Mercantile Exchange (CME) and the Crypto Facilities crypto exchange. These products are calculated in fiat, and therefore, when the CBOE and CME Bitcoin futures expire, no “physical” crypto assets are paid to the investors.
At the same time, the crypto market expects the launch of the Bakkt cryptocurrency trading platform, scheduled for January 24, 2019. This platform is developed by the Intercontinental Exchange (ICE), a network of exchanges and clearing houses for financial and commodity markets in the United States, Canada, and Europe, which is also the world’s largest futures market operator where all types of underlying assets are traded. Unlike CME and CBOE, Bakkt clients will be able to trade Bitcoin futures with a physical asset supply, which, in turn, will have a direct impact on the Bitcoin rate since the supply of cryptocurrency will increase the demand for it.
At the moment, it is unclear what type of contract will be the new Nasdaq product. According to Nasdaq chief executive officer Adena Friedman, their futures contracts for Bitcoin will be guided by the spot price of Bitcoin obtained from a variety of exchanges. CME Bitcoin derivatives use prices from four markets, while CBOE uses prices from just one.
Impact on the Cryptocurrency Market
Now Nasdaq is waiting for a decision from the CFTC. Joseph Christinat is confident, however, that the Commission will give a positive answer and company’s Bitcoin futures will start trading in the first half of 2019: “A huge amount of work was done to ensure that everything meets the requirements of the regulator.” Moreover, as Christinat emphasized, over the past five years, the Nasdaq team has been closely following the blockchain industry, and the current market downturn will not affect the company’s plans to enter the digital assets market.
At the same time, Gabor Gurbacs suggests that in 2019 new opportunities open up for the cryptocurrency market, in particular, due to the launch of Nasdaq Bitcoin futures. “We believe that 2018 was a year of regulation, and 2019 will be a year of implementation,” as Gurbacs stressed.
Thus, in addition to working on the Nasdaq Bitcoin futures market, VanEck is also waiting for the final decision of the U.S. Securities and Exchange Commission (SEC) regarding the launch of the first deliverable Bitcoin ETF. This product is developed in conjunction with the company SolidX, which develops blockchain-powered software and financial services. On Monday, November 26, representatives from VanEck, SolidX, and the CBOE met with members of the SEC divisions in corporate finance, trade and markets, economic analysis and risk analysis, as well as with the office of the general advisor.
During the meeting, the representatives of the interests of the crypto community paid particular attention to the current state of the crypto market, stressing that this sector is already mature enough for Bitcoin ETF, and the new product is not much different from the existing tools for assets, such as gold, silver, and oil. Moreover, according to company representatives, the Bitcoin ecosystem is less subject to manipulation than the markets for other assets. Thus, insiders of traditional markets may possess and trade information related to the supply of real assets, thereby putting pressure on their price.
Also, the representatives of the companies reminded the Commission of the matching engine developed by the CBOE and the VanEck MVIS index, which will help financial institutions determine the price of Bitcoin. The SEC should announce its decision on February 27, 2019.
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