Wednesday, November 8, 2017

CME institutes next step in controlling Bitcoin price by initiating circuit breakers in futures market

At the beginning of November the Chicago Mercantile Exchange (CME) announced they were ready to implement new paper futures contracts for Bitcoin and other cryptocurrencies by the end of the year, thus bringing the 'de-centralized' asset under Wall Street financialization.  Now on Nov. 8 this same exchange has announced they are ready to engage circuit breakers to control the amount gains or losses Bitcoin can incur in a given market day.

Having taken a gamble on bitcoin futures, which are set to begin trading by the end of the year, the CME is now seeking to avoid the consequences of what has emerged as both the cryptocurrency's best and worst selling point: its unprecedented volatility. To do that, the Chicago-based exchange will do what it does to virtually every other asset class traded under its roof, and impose limits on how much prices of bitcoin futures can fluctuate within a day. 
While the CME already uses daily vol limits on most other markets, including crude, gold and market futures, to temporarily halt trading when price swings get out of
control, the CME has never before dealt with something like bitcoin, which in addition to being the world's best performing asset classes in recent years, is also its most volatile. And, as the WSJ adds, it is also unclear how much impact CME’s limits will have on bitcoin, since its futures market has yet to emerge and most trading in the digital currency is on exchanges outside of CME’s control. 
In any case, based on the CME's preliminary term sheet, bitcoin trading limits would kick in when the price of its bitcoin futures move 7%, 13% or 20% up or down from the previous day’s closing price. The first two thresholds, for 7% and 13% moves, are “soft” limits, which would trigger a two-minute pause in trading of bitcoin futures. The 20% limit would be a “hard” stop on how far CME’s bitcoin futures could swing on any day. - Zerohedge


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