Some of the biggest trading firms in the world are getting in on the bitcoin business

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  • Two of the largest exchange groups in the world are aiming to launch bitcoin derivatives in the fourth quarter.
  • High frequency trading firms DRW and Virtu Financial are looking to provide liquidity in bitcoin futures. Quantlab, another HFT, is also looking at the market.

 

Two of the largest exchange groups in the world are aiming to launch bitcoin futures this year, and at least two big trading firms are looking to provide liquidity to the would-be market. 

CME Group, the largest exchange group in the world, announced Tuesday it would aim to roll out bitcoin futures. And Cboe, its cross-town rival, also has bitcoin derivatives in the works. Futures are contracts that allow two parties to exchange an asset at a specified price at an agreed upon date in the future. 

The launch of bitcoin futures by establishment exchanges is likely to open the door to wider participation in bitcoin trading. Most Wall Street trading firms are already plugged in to CME and Cboe, for example, and trade actively there.

“A broader set of proprietary trading firms may find the volatility of bitcoin appealing but also like the plug and play aspect of a CBOE product,” Bank of America Merrill Lynch analysts said in a note prior to news of the CME bitcoin futures. 

Virtu, a publicly-traded high-frequency trader, has met the product development team at Cboe, and is set to be a liquidity provider, a person familiar with the matter told Business Insider.

Bobby Cho, Head of OTC Trading at Cumberland, a bitcoin mining subsidiary of DRW, another trading firm, said in an email that the firm would be involved “anywhere there is significant volume and size in these markets.”

He said: 

“This is an interesting development in the bitcoin space because it potentially accelerates the pace of involvement of more traditional financial firms. Many already have connections into exchanges like CME, and this is just another product they can plug into. On another front, this likely accelerates the opportunity for a bitcoin ETF to come to market. All of this new activity will open up the market to a different segment of investors who may have been sitting on the sidelines waiting for these types of offerings, allowing them to express their point of view. As the largest liquidity provider in cryptocurrencies, Cumberland will be involved anywhere there is significant volume and size in these markets.”

Bradley S. Jonas, chief business development officer at Quantlab, a Texas-based trading firm, told Business Insider that the firm is watching the CME and Cboe bitcoin efforts with interest, but that it’s unlikely to be a “day one mover.” Jonas said the firm speaks regularly with CME and that he is set to reach out to them on their strategy for bitcoin futures soon. 

“When there’s a new product we watch,” Jonas said. “If it’s profitable then by all means we jump in.”

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