Eurex, the largest European futures and options market, might soon launch a range of crypto futures. That’s likely a result of increasing institutional interest in digital currencies. 

Eurex, the derivatives exchange operated by Germany’s Deutsche Börse, is gearing up to introduce a range of crypto futures contracts. Several sources familiar with Eurex say the exchange will launch BTC, ETH and XRP futures.

The news comes at a time where a number of U.S.- firms have announced plans to launch crypto futures, including ErisX, Bakkt and Seed CX.

Deutsche Börse has already played with the idea back in 2017. “We are thinking about futures, with which private investors and institutional investors can protect existing investments in Bitcoin or set for falling prices of the cyber currency,” said a Deutsche Börse spokesperson in December 2017.

Lack of hedging tool is a challenge for traders

The lack of cost-effective hedging tools has long been an issue for crypto traders. Thus, it’s not surprising that exchanges aim at providing access to derivatives.

Mark Lamb, the CEO for CoinFlex, said, “The space has been moving into this direction for a long time. Traders are all about the efficiency of their capital and maximizing the return on equity. Futures just make much higher returns more possible as they are really great for arbitrage and other complex strategies.”

Traders use futures contracts to protect their portfolio against price volatility. That’s especially important for institutional investors that need to follow strict investment guidelines and thus limit their risk exposure.

Bitcoin futures are heating up in U.S.

CME Group, the Chicago-based derivatives market, is offering a BTC future which has taken off during the first quarter of 2019.

February 19th marked a record high for the firm’s Bitcoin futures, with 18,338 contracts traded on that day. That’s equivalent to $360 million.

Especially institutional investors have purchased futures contracts. A CME Group spokesman said, “Institutional interest has gradually risen and the number of LOIHs (Large Open Interest Holders) has been holding steady around 43 holders since November.” An LOIH is an entity that holds at least 25 Bitcoin contracts.

So far, no regulated exchange in Germany has offered crypto futures. Eurex is moving as a pioneer.

Institutional platforms are on the rise

Crypto futures clearly target Eurex’ institutional client base. As a regulated exchange with a solid international reputation, the firm is perfectly positioned to meet the requirements for institutional investors seeking to take the leap into the crypto space.

Deutsche Börse has set up a “DLT, Crypto Assets and New Market Structures” unit in September 2018. It is working on a blockchain-based securities trading platform which will launch in the first half of 2019.

The firm is by far not the only European player addressing the needs of institutional investors. Börse Stuttgart, Germany’s second largest stock exchange, is also developing a crypto trading platform. Both, Liechtenstein Crypto Exchange LCX and Switzerland’s principal stock exchange SIX are setting up platforms suitable for institutional crypto trading.

Banks have also recognized the need to provide institutional infrastructure. Bank Frick, for example, has recently launched its subsidiary DLT markets, a trading platform for institutional clients.

Regulated exchanges moving into the crypto space, with an infrastructure and products that are tailored to the needs of institutional investors, are a clear sign that the market is maturing. We’re moving away from the crypto Wild West days to a regulated and professional market environment.

 

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