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How CME's First Week of Bitcoin Futures Trading Went

By Dan Caplinger - Dec 22, 2017 at 6:47PM

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A big late-week sell-off showed the fragility of bitcoin's bull market.

Bitcoin (BTC) has become the most popular investing story of 2017, and investors have poured into the bitcoin market looking for ways to place their bets on future moves in the cryptocurrency's price. The launch of the CME Group's (CME 1.80%) bitcoin futures marked a turning point for many institutions, giving them a chance to take positions on either side of the crypto trade.

The first week of CME bitcoin futures trading was tumultuous, with considerable volatility in both directions. Bitcoin's choppiness will likely continue, at least until traders in futures get more comfortable with the mechanics and tendencies of the bitcoin futures market.

What happened with the bitcoin reference rate this week?

The CME futures use what's known as the bitcoin reference rate, which is a composite of prices on multiple bitcoin exchanges. The trend in the bitcoin reference rate was clearly lower this week, as the table below shows.


Bitcoin Reference Rate

Dec. 18


Dec. 19


Dec. 20


Dec. 21


Dec. 22


Data source: CME Group.

The big news came on Friday, when bitcoin spot prices plunged 20%, to touch the $10,400 mark before rebounding. Some market commentators immediately declared that the bull market for bitcoin was over, pointing to downdrafts amid the full range of cryptocurrencies, including Ethereum (ETH), bitcoin cash (BCH), and Litecoin (LTC).

Interestingly, though, the price action across the crypto spectrum earlier in the week looked a lot different. Bitcoin cash actually rose at the expense of regular bitcoin on Wednesday, soaring 40%, due to its availability on the Coinbase exchange. By Thursday, the market rotated again, with bitcoin and bitcoin cash both falling on reports of an internal insider-trading probe at Coinbase concerning bitcoin cash, while competing cryptocurrency Ripple (XRP) gained ascendancy.

Bitcoin symbol superimposed on a candlestick chart in blue with yellow and red lights.

Image source: Getty Images.

How did bitcoin futures behave?

Bitcoin futures generally tracked bitcoin prices well. The January contract began trading around $19,000, and climbed almost to the $20,000 mark before beginning to give up ground. Yet by Tuesday, a sustained downtrend kicked in, slashing more than $2,500 off the bitcoin price, to near $17,000. Futures treaded water on Wednesday, but continued selling cut another $3,500 from the contract price on Thursday.

Friday saw the first instance of the CME's provisions to halt trading in the event of a major price change. The 20% decline in bitcoin futures prevented subsequent trading below $12,265, leading to minimal volume for about a 35-minute period in the morning. Later in the day, the contract rebounded, closing at $13,900. The session featured almost 2,370 contracts, working out to about $165 million in nominal bitcoin value traded during the session.

What to expect next week

Bitcoin bulls and bears will fight it out over the weekend, and it will be interesting to see how the market moves over the long weekend. Spot bitcoin trading is continuous, but CME futures won't reopen until after the Christmas holiday.

By then, it's entirely possible that there'll be some significant catching up to do. Which direction futures will have to move to do so, however, remains anyone's guess at this point. Just about the only certain thing with bitcoin right now is that the unexpected can happen at any moment -- and the next move could take the cryptocurrency up or down thousands of dollars in a short period of time.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends CME Group. The Motley Fool has a disclosure policy.

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