US options exchange partners with cryptocurrency player

BI Intelligence

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CBOE Holdings, which oversees the Chicago Board Options Exchange, one of the world's largest options exchanges, has partnered Gemini Trust, a New York-based cryptocurrency exchange backed by the Winklevoss brothers, which deals in assets including Bitcoin and Ether.

Under the deal, CBOE will use Gemini's cryptocurrency market data to create new indices, and eventually, if it receives regulatory permission, to launch cryptocurrency derivatives trading. CBOE hopes to roll out Bitcoin futures by the end of 2017, followed by futures for other cryptocurrencies, and possibly cryptocurrency options later on.

Cryptocurrency derivatives could add significant value for both exchanges and traders. US options exchanges in the US have seen lower trading volumes of late, amid a relatively calm global stock market environment, according to The Wall Street Journal. In turn, this has likely led to a lack of commissions for these exchanges. By contrast, cryptocurrencies have fluctuated dramatically, making them an attractive asset class for derivatives traders. By adding cryptocurrency derivatives, CBOE would be giving its clients access to a dynamic new market, and boosting its own earnings in an otherwise stagnant environment.

Although regulatory approval for CBOE's venture isn't guaranteed, there are several factors in its favor. As long as mainstream stock markets remain stable, interest in the cryptocurrency derivatives space is likely to keep accelerating, thereby maintaining the sector's dynamism. Other major exchanges, like Miami International Exchange, which owns a stake in cryptocurrency derivatives fintech LedgerX, are also planning similar initiatives. As more institutions begin looking for ways to meet investor demand for cryptocurrency access, this could put pressure on regulators to license and oversee such projects, in order to ensure their proliferation is properly monitored and augments rather than upsets the broader financial system.

Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on blockchain in banking that:

• Outlines banks' experiments with blockchain technology. 
• Details blockchain projects at three major banks — UBS, Credit Suisse, and Banco Santander — based on in-depth interviews. 
• Discusses the likely trends that will emerge in the technology over the next several years.
• Highlights the factors that will be critical to the success of banks implementing blockchain-based solutions.

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