CME Increases Position Limits for Bitcoin Futures

The world’s biggest exchange for futures trading is betting on increased demand for bitcoin futures.

The Chicago Mercantile Exchange (CME) filed with the CFTC last week to increase the number of open interest position limits for bitcoin futures from the current 1,000 contracts to 2,000 contracts, starting October. In simple terms, this means that traders will be able to hold larger positions in bitcoin.

Each CME bitcoin futures contract currently has a size of five bitcoin, translating to a maximum allowable exposure of 5,000 bitcoin per trader. An increase in position limits allows investors to put money for 10,000 Bitcoin (approx. $100 million based on current prices) on the table.

“The Exchange deems this (limit) to be adequately stringent to discourage attempted manipulation of the BRR benchmark in connection with final settlements of expiring contracts,” CME wrote in its release announcing the increase. Bitcoin futures on CME are cash-settled, meaning the holdings amount is paid out in cash upon expiry.

(BRR refers to the Bitcoin Reference Rate that is used to calculate price for the cryptocurrency. It is based on trading prices from four cryptocurrency exchanges: Coinbase, Kraken, Gemini, and BitStamp.)

A Turning Tide

Over the last year, as bitcoin price and crypto markets crashed, the number of open contracts for bitcoin futures dwindled on CME’s platform. But the tide turned this year as a wave of positive announcements propelled bitcoin prices higher. New traders arrived on CME’s platform and numbers for open interest for Bitcoin futures set a record high of 6,100 this past July.

According to an August Forbes post, bitcoin futures averaged 7,237 contracts per day in 2019 – an increase of 132% from previous year figures. CME’s announcement sets it up for competition with other futures platforms expected to launch in the near future. The list includes Bakkt and ErisX. A key difference between these platforms and CME is that the former are cash-settled while the latter will make final settlements in bitcoin.