Regulators are taking note of this growing activity. One of the first to take concrete action was the Commodity Futures Trading Commission, which has classified Bitcoin as an "exempt commodity" under the Commodity Exchange Act rather than as a currency. Exempt commodities are defined as “a commodity that is not an excluded commodity or agricultural commodity” that includes metals, energy and weather events. This precludes Bitcoin operators from relying on regulatory exemptions for certain FX transactions under the CEA.
The CFTC has issued a number of enforcements against firms trading cryptocurrencies for violating CFTC rules, but it has also authorized trading platforms providing Bitcoin products. The most significant development has been its decision this summer to allow LedgerX, a New York-based startup backed by Google Ventures and other venture capital investors, to operate a trading venue and a clearinghouse for derivatives based on digital assets such as Bitcoin. LedgerX plans to start with puts and calls and day-ahead swaps, and plans to use blockchain technology for the physical settlement of transactions in Bitcoin. Access will be limited to "eligible contract participants," which effectively limits participation to institutions such as hedge funds and broker/dealers and to high net worth individuals with at least $5 million in assets.
In August, CBOE announced an agreement with Gemini Trust Company that put Bitcoin derivatives even more firmly on the map. The two organizations unveiled an exclusive Gary DeWaal, financial services attorney at Katten Muchin Rosenmann, which represents LedgerX, noted the significance of the regulatory approval. “Just as the launch of currency futures global license agreement to use Gemini’s Bitcoin market data for cash-settled Bitcoin futures to be traded on CBOE Futures Exchange, which is currently the home of CBOE's futures on volatility.
Under the terms of the agreement, CBOE will have a multi-year exclusive global license permitting it to use Gemini's market data, including Gemini daily Bitcoin auction values, in the creation of Bitcoin derivatives products for listing and trading. The two companies said they are aiming to launch their first products late in 2017 or early in 2018.
Ed Tilly, the chairman and chief executive officer of CBOE, said the exchange was “responding to the growing interest in cryptocurrencies through the creation of Bitcoin futures traded on a regulated derivatives exchange, with the many expected benefits that this brings, including transparency, price discovery, deep liquidity and centralized clearing."
Tyler Winklevoss, chief executive officer of Gemini, added: "Gemini's key concerns in the cryptocurrency ecosystem have always been security, compliance, and regulatory oversight. By working with the team at CBOE, we are helping to make Bitcoin and other cryptocurrencies increasingly accessible to both retail and institutional investors."
CBOE President and Chief Operating Officer Chris Concannon explained that the new product has the opportunity to touch a broader set of investors and clients because it solves the issue of storage that has so far kept some investors out of the market. He also suggested that listing Bitcoin futures would create another opportunity for the market maker community active in exchange-traded markets. In the view of market makers, said Concannon, Bitcoin "is just another instrument in the foreign exchange market." He added that some CBOE market makers are already trading Bitcoin on the various exchanges and predicted that they will support the new product. "I don't think we need to spend too much time attracting market makers," he said. "They're already connected to our platform, and they're already actively trading in the cryptocurrency market
Further evidence of the growing credibility of cryptocurrencies is the development of exchangetraded funds in Bitcoin. A number of investment firms are planning to offer exposure to Bitcoin prices through ETFs. Among them are VanEck, which plans to launch an actively managed ETF that will invest in Bitcoin-linked instruments, and REX Shares, which plans to launch a fund that will invest in derivatives and other financial instruments based on cryptocurrencies. The key issue is whether the Securities and Exchange Commission will allow them to come to market.
https://marketvoice.fia.org/issues/2017-09/cryptocurrency-derivatives-exchanges-take-interest
