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In this episode, Anthony sits down with Giovanni Vicioso, the head of Cryptocurrency Products at CME Group. They discuss the CME's new Bitcoin Friday Futures (BFF) contract, designed for easier access with a smaller size and weekly expirations. They cover how BFF trades closer to Bitcoin's spot price, the impact of rising Bitcoin ETF volumes, and the increasing liquidity during U.S. hours. Gio also introduces new reference rates for XRP and Internet Computer and explains how these innovations enhance capital efficiency and market accessibility for both retail and institutional traders. Tune in for insights into the evolving crypto futures landscape!
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What's up traders, Anthony Crudele here. And thank you for tuning in to the futures radio show podcast. In today's episode, I'm joined by Gio VCO. So global head of cryptocurrency products at CME group. Let's get started. Today's podcast is brought to you by CME group. Whatever the obstacles, CME group provides the tools that global market participants need to manage risk.
And capture opportunities with 24 hour access to futures options, cash, and OTC products across all major asset classes. You can drive your trading strategy forward with confidence. And precision CME group where risk meets opportunity.
Gio, welcome back to the show, my friend. Thank you so much, Anthony. Pleasure to be back. Great to have you back. We're going to start off with some news. CME just announced the BFF contract. Talk to us about it and why should traders and investors take note of this new announcement? We're super excited about the latest addition to our cryptocurrency suite, Bitcoin Friday Futures, and what we're really hoping will become investors new best friend, or BFF, Bitcoin Friday Futures, right?
This particular contract, right, we're introducing this contract, it's a bit smaller sized, and that's really from feedback that we receive from market participants, particularly, say, uh, individuals, sophisticated retail traders, right? Um, what we're hearing You know, with the price movement that we've seen in the marketplace, when you look at Bitcoin, you know, last year, the price of Bitcoin more than doubled this year, even though, you know, the past couple sessions, you know, we've seen some price decline, but overall year to date, Bitcoin is still up about 30%.
So what, what happens with our existing suite of products, we have a Bitcoin futures contract at five Bitcoin. We have a micro Bitcoin futures contract at one 10th of a Bitcoin. So at these elevated prices, even that smaller micro Bitcoin contract becomes a little bit inaccessible for some retail participants.
So we're introducing Bitcoin Friday futures at one 50th of a, of a Bitcoin. So that's five times smaller than our existing micro Bitcoin futures contract. Additionally. This contract in the name, that's Friday. So this contract is a weekly contract, which will expire every Friday. We'll list two contracts at a time, so investors will have the opportunity to trade, you know, this coming Friday's Friday contract or next Friday's Friday contract, if you will.
Right. Now, Because it's a shorter date, a shorter duration contract, it should trade much closer to spot. If you just think about how a futures contract is priced, and let's say it's the beginning of the month, for example, and, and, you know, you've got a choice to either trade MBT, trade BFF. MBT is a monthly contract, so it's going to have roughly, beginning of the month, about 30 days worth of carry.
When you look at BFF, it's going to have a carry of four to five days. So in terms of, of that price to the underlying spot, uh, price of Bitcoin, BFF should trade much closer to spot. Now, as, as the month goes on, uh, MBT, you know, the carry will get smaller and smaller. So it would also be interesting to see, How those two contracts say, uh, interact with each other in a way.
Cause I think that they'll, they'll also be, um, you know, a basis between those two contracts. The other thing that's different with this contract, both are MBT. a micro bitcoin futures and bitcoin futures contract Settle to the cme and crypto facilities bitcoin reference rate Now that is a reference rate that is published at 4 p.
m. London time, uh every day bff Will settle to the brny So the cme and crypto facilities bitcoin reference rate new york variant now What's important there and interesting at the same time is that when you look at the volume that we've been seeing particularly during US hours and really after the launch of the the spot Bitcoin ETFs earlier this year We're seeing more and more Bitcoin ether volume traded during US hours In fact, if you look at volume just between 3 to 4 p.
m. New York time Um, and bear in mind that the ETFs settle or net asset value is calculated for the, for the ETFs at 4 p. m. New York and 7 out of the 10 new spot Bitcoin ETFs are benchmarked to that same rate that BFF is settling to, the BRNY. And what we're seeing in that one hour window between 3 to 4 p.
m. New York, we're really seeing an upswell of volume. In fact, Over 20 percent of a day's volume is now being transacted in that window. So BFF now, smaller sized, shorter duration, right, settling to BRNY, is really also providing our clients that opportunity now to tap into some of that growing liquidity, particularly around, uh, the net asset value calculation of these ETFs.
And it's important to note that This contract is complimentary to our, our existing suite. That's so interesting to hear about the volume, um, because it shows that the impact that the ETF is making on it. And I also think obviously the future started this where futures markets were closing around that time as well, because of when the futures markets closed and how many people are trading equities and Bitcoin futures, it's interesting to see how that surge of volume and that timeframe.
Uh, as having an impact on, you know, on the industry as, as a whole. I mean, I think it's something really important to note. And I guess, you know, I had a few questions about this. One is why the weekly expirations? When you initially said weekly, the first thing that came to my mind was, I know how big weekly options have gotten.
I know this is a future. But is that just really the timeframe right now? Like the sweet spot where we're seeing more and more activity and really all products. Yeah, for, for sure. I think that there's, there's more and more interest, say, in shorter dated duration products. Right. And I think, you know, when I mentioned earlier, the fact that.
The Bitcoin Friday Futures only has a life, life of about five days or so, right? We list the contract, say Sunday evening, uh, 6 p. m. New York time, and that contract will expire at 4 p. m. that following Friday. The cost of carry then, as I mentioned, is just, just for that week, right? So that contract should trade much closer to spot.
So BFF could be an alternative. For example, for that investor that's looking to get access to Bitcoin, they could certainly get spot access. They could probably trade an ETF. They could trade futures. Now they also have the opportunity to trade Bitcoin Friday futures. And that contract should. Provide them with better say, capital efficiencies as they only have to post a margin against that contract.
Right. And just to put that in perspective, if you just consider the size one 50th of a Bitcoin at current levels, that that's a notional value of about 1100 bucks or so. When you consider that exchange minimum margins at the moment. roughly around 24%. So in terms of the margin that that investor needs to post for access to that 1100 notional size contract, they need to post just under 300 and they're getting exposure to 1100 worth of Bitcoin.
So it's very, um, capital efficient in that sense. The other thing to note is that because this contract expires on a Friday, it really also helps any investors, for example, that are looking, you know, They don't want to have that weekend risk. Well, this contract expires Friday, so you don't have exposure over the weekend.
If you want to maintain that exposure over the weekend, you can reestablish a position, say that that Sunday evening, or you could trade, um, say the, the further out, uh, Bitcoin Friday futures. Cause remember that there's always at least two contracts listed at any one time. Yeah. And I'm glad you mentioned capital efficiencies because I think that's one of the most important aspects of futures markets.
Uh, if you hold a Bitcoin position, you now have multiple different ways to hedge that position or just, you know, trade the price action in it. And the next thing I was going to talk about is just the size of it. Why go down to a 50th? Where did that number come from? So that really came down from, from conversations, um, you know, that, that we've had with some of the, uh, retail, uh, platforms, retail partners, where you look at the, you look at where Bitcoin is trading, you know, at the moment, and, you know, today's a down day, but, but it's, it's just under 60, 000.
Right? So, so when you look at even our micro contract, That, call it a price of 60, 000, that micro contract is 6, 000 in terms of notional. Now you, similar to what I described before with Bitcoin Friday futures, market participants just need to post margin against that. So in the case of MBT, you know, you're posting, you know, about 1, 200 or so in terms of margin, whereas with BFF.
You know, you're posting in that current market levels, less than 300, right? So, so it's a more accessible contract, right? Um, so while it is retail friendly, say that this contract could also be institutional, uh, friendly as well, or friendly, say for, for, for institutional participants. And the reason for that is that if you're looking, say for a contract that is, that can be an alternative, say to trading spot.
BFF can do that for institutional participants as well. Um, so participants, for example, um, you know, you consider some of the ETF providers, some of the, the futures based ETF providers. Um, you know, there could be a use case for, um, BFF. I anticipate that there will be some interesting trading opportunities, perhaps also involving, uh, BFF.
Because if you, if you think about it, you've got a contract now that settles at 4 p. m. New York. You've got, um, Other contracts that settle at 4 p. m. London. There could be an interplay between those two contracts as well, because now there's a spread trade there that market participants can also look to trade.
Yeah, I think that being smaller is such a great thing, especially for a Bitcoin contract. Cause let's face it, originally Bitcoin was made so that everyone can access it. Right. I mean, you, you know, there's a lot of people out there that are just buying decimals worth of Bitcoin and this Allows those people to now participate in hedging their positions in the futures market.
And so it opens the door to what Bitcoin originally was right into where everyone can have access to it. And I think having our markets futures markets, getting those people the ability to, for a more cost efficient way hedge and actually trade the price action as well, if they want. So I'm really glad that you guys went that small, because like I said, I, for so many reasons.
100%. I guess I'll add too, right? So what we're seeing, particularly with, with our smaller size contracts, so looking at our micro suite at the moment, now we have seen an upswell in volume there as well. In fact, if you look at micro Bitcoin futures, that contract now is on average trading between 200 to 300 million per day.
Now to just put that in perspective, Last year, that contract was probably doing about 30 a billion a day. So 30 million a day, sorry. So it really has grown particularly since the introduction of these, um, spot ETFs. And I think part of the reason there is that you do see because of their smaller size, they are also provide a bit more flexibility in that you could use these contracts to maybe fine tune some of your exposures as well.
If you consider, for example, somebody that's looking to hedge ETF activity on average, you know the average trade size, say for spot Bitcoin, ETF is around $20,000, right? So to a market participant who's looking to hedge that, they could more easily hedge that with MBT with two to three contracts, for example, versus trading BTC, which which would give them exposure, say to, to five Bitcoin.
And now with the introduction of BFF, we're even allowing market participants even more granularity in terms of being able to. So Gio, something important to discuss because I think that not everybody completely understands settlement versus the last print that you'll see on a futures market. Sometimes people will see the last print and assume that is settlement.
But that's not the case. Can you explain in detail how settlement actually works? Um, sure. So, uh, in the case of our Bitcoin Friday futures, settlement is to the CME and CF, uh, Bitcoin reference rate, New York, right? So that is a rate that is calculated daily by CF benchmarks. And what they do, um, every day between three to 4 PM New York time is that they pull dollar Bitcoin transactions from each of six constituent exchanges.
And That separate that hour into 12, five minute buckets at each five minute interval, they calculate a weighted median, and then take a simple straight average of those observations that then becomes the price, um, for the BRR published at 4 PM, New York time, uh, every day. And on Fridays, that is the price to which our futures contract would settle to.
Got it. Well, thank you for explaining that. And how close. Is typically those last prices to that reference, right? Because you said, because we get into a weekly product, it's trading a lot closer to spot. So is that something that you've noticed is that people that are the futures markets are almost very closely tied to what that, uh, Potentially median or settlement price, maybe so for sure.
So by definition, the futures contract is going to settle to that rate. So on that last day there, there is a no, no mismatch. The futures contract will settle to the BR and Y. Now say in the days leading up to that, there may be a basis. Um, you know, that exists and that basis is simply, you know, the differential between, uh, the futures contract and say the, the underlying spot market.
Since BFF isn't currently in market BFF, uh, we'll go live on September 30th. So, so please, uh, be there, but maybe just to share an example with, um, you know, our existing micro Bitcoin and Bitcoin futures contracts. So if we look at where the basis is currently, and again, the basis being defined as that. A difference in price between the futures price as, as you see it on screen and where the underlying spot market is at that same time.
So that basis is, is running roughly on an annualized basis. It's running around a seven to 10%. Now that is a, it's a value that does move around. Um, you know, earlier in the year, uh, when there was a anticipation of the approval of spot Bitcoin ETFs, you know, the basis was running North of 20 percent and recently, you know, I saw that basis trade a sub seven percent But on average this month it's been, you know around that that seven to ten percent basis And you'll see then that that basis for the expiring, uh contract you'll see that basis essentially come down if you will So that on the last trade date for say micro Bitcoin and Bitcoin futures, which is the last Friday of the month, that basis is essentially zero because by definition, the futures contract will settle to, um, in the case of MBT and BTC, they settled to the BRR.
And again, just for clarification, BFF will settle to BRR NY. Got it. No, thank you so much for that explanation. I think it's extremely important people understand how that settlement works. I want to talk about this contract. And how I think it really is going to be really interesting to see because it's a weekly contract on really busy weeks in the market.
Let's talk about FOMC week. You know, Gio, I don't think that people look enough at Bitcoin and Ethereum during FOMC week. Everyone seems to be so hyper focused on what's going to happen to NASDAQ, S& P, Russell, you know, rates, but these products are not part of the conversation. And. I think with a weekly contract, when you have really big data points, I'm curious to see how much of a role they play.
And I know it's not really a question, but how much. Uh, I guess maybe volume. Are you seeing on a regular basis when we have really important weeks like FOMC or CPI, how much is Bitcoin futures and Ethereum futures part of the conversation now? I think that's, that's a great question. Right. And I think going back to what I mentioned before with BFF, Uh, being a shorter duration contract, you know, being able say to trade a little bit closer to spot in that scenario that you pointed out, you know, let's say that that an investor is, is, is anticipating that there's going to be an, an, an interest rate move.
Right. Um, and they anticipate that that's going to happen over the next few days. BFF could be just the right tool to execute that view because that contract is going to trade much closer to spot. And that particular trader will essentially be able to, you know, call it. trade spot, but they're doing it, um, in a much more capital efficient manner.
Now taking a look to address your question about how Bitcoin and Ether, um, have responded. If we just take a look at what happened, say the evening, Sunday, August 4th, right? Where there was a lot of activity, um, that day. There, there was, um, you know, the, uh, Japan had just, uh, raised rates. You know, there was a collapse, say, of the yen carry trade.
So what we noticed that Sunday evening. All right, between say 9 to 10 p. m. New York time, typically during that hour across our suite of Bitcoin and Ether futures products, typically we trade about 2, 000 contracts a day in that hour. On that day, that hour, we traded more than 69, 000 contracts. That was a 36 times, uh, increase, right?
So really what that says, and I think that there were some firms even, um, you know, cause I think we, we saw a lot of, um, ether, uh, micro ether activity that evening as well. And I think that there were some firms that traded more micro ether in that hour than they've traded in that hour, say for the entire year.
So it was, it was, uh, you know, we really saw a lot of volume, uh, that That evening, but I think what that shows is that the marketplace when market participants need that liquidity and liquidity is really vital to any investors trading decision, right? But market participants need to know where they can go to manage that risk efficiently and reliably or gain exposure when they need it.
Yeah. Geo, that's one of the things that makes you see me very unique. Is providing liquidity in the hours, uh, you know, in the overnight hours, or, you know, obviously in the day hours as well that nobody else is able to provide through the futures markets. 100 percent and where else but CME can investors go to find liquidity across six, call it seven asset classes if you count cryptocurrencies.
And certainly on that night of August 4th, liquidity was there when clients needed it most. And we prove that the capacity is there when you need it. Yeah. And, you know, and traders know that and that's why traders come to futures markets. Uh, in these times, right? I mean, futures markets are there to hedge.
Obviously big, big headers are coming in, in these moments. And then you have people coming in that want to trade the price action and it brings everybody together in a central place, which I think is always what makes futures my preferred product. Uh, I want to talk about another announcement. XRP and internet computer reference rates.
So talk to everybody about these. Yeah, so earlier in the month, we added two more reference rates to our suite of reference rates and real time indices. With the addition of XRP and Internet Computer, we now cover, I believe it's 24 different coins and tokens. So these reference rates and real time indices, you know, similar to what I discussed earlier about the BRR, BR and Y, the reference rates that we have across these other coins and tokens really provide market participants with that price discovery.
Right? So participants can, can look at these rates for transparency. Um, they could use these rates perhaps as benchmarks to track, say their portfolios or as a benchmarks reference rates that they can use perhaps to create ETP exchange traded products, for example. So, so we're, we're, we're super happy, you know, with the addition of those two, we now cover, um, about 93 percent of the investable cryptocurrency market cap.
Yeah, I think it's great that you guys are doing this and it obviously always opens up the door for the question of when is there going to be, or is there ever going to be other futures products for these other currencies? Where are you guys with that? For us at the moment, it's, it's really continuing to focus on, on Bitcoin and Ether.
When you look at those products and you see the tremendous growth that we've brought to the market, you know, we're averaging now on Bitcoin, we're trading upwards of about 4 billion a day. You know, when we first launched Bitcoin, uh, futures back in December, 2017, I think we traded that day about a hundred million.
So, you know, it's grown a lot, but the market is still relatively small and there's still, you know, a lot of room for growth, not just for futures, but also say me in the ETF space as well. And when you look at those products, they are symbiotic products, right? Where growth in one. helps the other and vice versa.
Um, so I think that there's, there's still plenty to do. You know, we've introduced additional mechanisms if you will. Um, for example, we offer a BTIC basis traded index close. Uh, we also offer TAS, trade at settlements, the ability to trade futures contracts relative to the settlement price of a futures contract in the case of TAS, but we also allow market participants to trade the basis relative to the underlying reference rate.
And what's interesting there is that when you look at the ETFs, seven of the 10 spot Bitcoin ETFs are benchmarked to the BRR and Y. Um, so BTIC for say liquidity providers and authorized participants for those products can benefit from using the BTIC functionality to trade futures contracts and hedge activity around net asset value calculation.
We recently added or expanded the listing for TAS or the functionality for for TAS trade at settlement. So what we're seeing now is market participants use that TAS functionality to essentially roll their futures positions. You know, we're now seeing TAS volume fairly consistently, uh, 200 contracts a day through that TAS mechanism.
And like I said, still early days, but We're seeing more and more development we're now seeing in terms of block volume. So if you consider blocks, blocks tend to be a larger size. Trades, like the minimum block size for, uh, a Bitcoin. A block is five. Uh, bitcoin, so, so 25, uh, equivalent, uh, or, or five contracts, sorry, 25 equivalent Bitcoin.
Um, we're seeing more and more institutions use that, uh, functionality as well. We're seeing now blocks represent about 9%. of Bitcoin futures volume, and that's up, you know, last year, I think we were doing maybe blocks were about 6%. And if we go a little bit further back, maybe to 2021 blocks were just were less than 1%.
So we're really seeing more institutions step into this into the space. Certainly benefiting from the volume, but I'd say that it's still relatively early days. So still lots more to do with respect to continuing to grow our Bitcoin and Ether futures and options products, um, with respecting and to your question about, uh, potential other futures contracts.
I think really what we need, uh, there is really just a bit more regular regulatory clarity as it speaks about what is and what is not a security, for example. I agree. And I actually think it's smart for everybody to. Take a long pause as we get all of these new products in, because let's face it, we don't know necessarily how long some of these products will exist.
I mean, I think there's just too much up in the air. We all know that Bitcoin has made its stance. Ethereum's made its stance. I mean, these products are, Unlikely to go anywhere. And so they now have their real place in the market and you hear everybody talk about them. Uh, you know, no matter who it is, if it's a young, young person versus an older person and their stream, they're, you know, the streamline products now.
And I think that, All these other cryptos, cause there's so many of them. How do you pick and choose which ones are which? How do you know which ones are going to be there? I think that everybody needs to take a breath here and say, look at, let's see how things pan out. This is the beginning phases of this industry and we'll wait and see how it goes.
So, uh, I think something else that's interesting. And to that point, right, when, when you look at Bitcoin, you look at ether, right? And certainly the two leading cryptocurrencies by market cap. But what's really interesting, though, is that Bitcoin just seems to be getting stronger and stronger, right? You see its dominance by just looking at its sheer market cap compared to other cryptocurrencies, right?
I think now Bitcoin represents a A little bit under 60 percent of total cryptocurrency market capitalization, and it's it's been picking up market share even when compared to, um, to ether and anything. I think the last time that we spoke, I think it was just about the time when we introduced Bitcoin ether ratio futures.
And if you recall, that contract allows market participants the ability to trade that relationship. So it represents the number of Bitcoin needed to trade one Ether, for example, right? And what I find extremely interesting is that Bitcoin just continues to, you know, to dominate and that ratio, you know, we launched that contract in July of last year.
And so far this August, that relationship is at the lowest that, that we've seen it since launch, meaning that Bitcoin has. outperformed, uh, Ether. I think it's trading right now at about 0. 04 and change. Whereas when we first introduced that contract, it was trading more around, you know, 0. 07, 0. 08. So it's, it's just amazing to, you know, to watch that there seems to be a lot more talk about, uh, Bitcoin.
You certainly see it with the trading volumes as well. I think this month, uh, we're also seeing that when you look, say at, uh, the total notional value of Ether futures traded relative to the total notional value of Bitcoin traded. Ether is running at about 14 percent this, this month. And that's really the lowest level that we've seen since I think April of 2021.
But bear in mind that we launched Ether futures in February of that year. So, um, it's interesting to see the, uh, you know, Bitcoin just continue to, to outperform, uh, Ether. Geo, so much discussed today. And we talked about how this is really the early days of crypto, but there's just so many things that are happening right now.
What excites you, uh, into the year end or in the near term that traders and investors should be keeping an eye on? I think that there's um, there's a lot of uncertainty, right, and there's certainly a lot of uncertainty around crypto, but really markets in general, you know, whether it's the direction of rates, you know, geopolitical risks, or what's considered a security or not.
One thing that that I am certain about is that our suite of regulated accessible cash settle and highly liquid suite of both Bitcoin and Ether futures and options can really help institutions, sophisticated, uh, traders, you know, position their portfolios, whether that be say that they're managing risk, you know, gaining exposure or just simply opportunistically trading and seeing that happen is super exciting.
It is super exciting. I am so excited about the future of futures. Everyone knows this has been my life for nearly three decades. And you know, it's always great to get a chance to, to hear from the CME side, what's happening with products. And it's great to see the growth in volume, all the new products that I think We go back to a geo it's welcoming more and more people in our industry, which I think is so important.
I think crypto has done a lot for futures markets in general, because it's brought a lot of those crypto traders into trading potentially indexes or interest rates. And, and now when interest rates are coming out on FOMC day, you've got ways to trade Bitcoin. And, uh, you know, 10 year and S and P all futures markets all in the same screen.
And, you know, I, I'm really excited about that and, and what the future holds. Geo, thank you again so much for joining me today. It's always a pleasure to talk to you, my friend. And Anthony, before signing off, who's your bestie? My bestie, my best friend, BFF. Big Point Friday Futures, there you go.
I know when I saw the name, I'm like BFF. I'm like, I love it. It's been a pleasure. Thank you so much.