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12 January 2020

JPMorgan expects interest in CME bitcoin options contracts to increase

The bank calculates intrinsic value by treating bitcoin as a commodity and looking at the marginal cost of production including computational power employed and the cost of electricity.

The introduction of new bitcoin contracts has a mixed track record/Bloomberg

JPMorgan Chase & Co. said that institutional interest in bitcoin-related contracts appears to be building and market measures indicate high anticipation of the launch of Chicago Mercantile Exchange (CME) options on 13 January 2020, reported Bloomberg.

While a consortium known as Bakkt, which includes New York Stock Exchange parent Intercontinental Exchange, began offering options last month, volumes and open interest have been ‘rather small’, said strategists led by Nikolaos Panigirtzoglou. Given the dominance of CME in trading bitcoin futures on regulated exchanges, strategists expect this new offering may change things.

“There has been a step increase in the activity of the underlying CME futures contract,” over the past few days, Panigirtzoglou wrote, noting that open interest has increased 69 per cent from the end of 2018 and that the number of large open-interest holders has grown.

“This unusually strong activity over the past few days likely reflects the high anticipation among market participants of the option contract,” said Panigirtzoglou.

The introduction of new bitcoin contracts has a mixed track record. At times it has appeared to be a drag on the price, such as when ICE debuted its new futures contract in September. And the price peak around $19,000 in December 2017 occurred just as CME and Cboe Global Markets launched features on the world’s largest cryptocurrency.

Separately, bitcoin’s intrinsic value has been rising, but remains below the market price following a significant divergence in the middle of last year, said JPMorgan.

“The market price has declined by nearly 40 per cent from its peak while the intrinsic value has risen by around 10 per cent, but the gap has not yet fully closed, suggesting some downside risk remains,” said Panigirtzoglou.


RELATED STORIES: Chicago Mercantile Exchange JPMorgan Chase & Co. bitcoin





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