Eurex Takes First Step in Crypto Derivatives
Eurex has launched Bitcoin ETN Futures and could eventually launch options or futures on other crypto exchange-traded notes if the derivatives arm of Deutsche Börse Group receives regulatory approval.
Randolf Roth, member of the executive board at Eurex, told Markets Media: “The Bitcoin ETN future is our first product in the crypto space and is most likely not going to be our last, but the space is receiving heavy regulatory attention.”
The derivatives exchange launched the first regulated market in Bitcoin-related derivatives in Europe on 13 September. The futures contract is based on the ETC Group’s BTCetc Bitcoin Exchange Traded Crypto, which is listed on the Frankfurt Stock Exchange.
Roth said: “Crypto assets are too big to go away and we need to find a way to ensure trading in a more sound environment.”
He continued that there have been consistent price quotes in all maturities and even some initial turnover since the Bitcoin ETN future began trading.
“However, this is still at a low level, something which is not unusual for new contracts. Trading often only sets in over time,” he added. “And, in the case of Bitcoin ETN futures, we are talking about a completely new segment which our customers and the market need to adjust to.”
Sascha Semroch, product development manager at Eurex, told Markets Media that Eurex’s micro EURO STOXX 50 contract traded 22 contracts on its first day and is now trading 14,000 contracts daily after five months.
“Many clients just want to see the Bitcoin future listed before doing their internal work and will wait to see how volume develops, especially for a more exotic product, so it will take a bit more time to grow,” Semroch added.
Semroch continued that a key regulatory question was whether the product design and concept was part of Eurex’s clearing model and licence.
“We had to demonstrate that we were simply extending the universe of futures on an underlying exchange-traded product like we already have in oil or gold.” he added.
In order to ease the approval process Eurex chose to base the Bitcoin future on a security which has has been among the most heavily traded ETF/ETN contracts on Xetra since it listed in June last year.
Roth said: “There is heavy regulatory focus on crypto so it made sense to launch the future on a regulated financial instrument but, nonetheless, it took a while to get through the approval process. We are the first European exchange to launch crypto derivatives so it is understandable that there is a lot of regulatory focus as we create more credibility to the segment due to our name and the way we organise markets.”
Eurex needed to prove to the regulators that it had a sound and robust risk model as Bitcoin is highly volatile. The exchange’s risk model calculates the most extreme movements with a certain probability for the initial margin – which is higher than in lower volatility asset classes.
“Our clearinghouse has numerous liquidation groups and we now have one dedicated to crypto assets,” Roth added.
The futures target institutions who want exposure to the Bitcoin price, without the need to have a digital wallet, and who want to trade on a regulated exchange using the same infrastructure for central clearing as for their other derivatives trades.
The new contract trades in Euros and is physically delivered in the ETN, which is 100% backed by bitcoin and can be readily redeemed by any investor for the underlying bitcoin.
“Once the futures volume has grown we could also launch options on the Bitcoin ETN if there is client demand,” Roth added. “But this requires further conversations with our regulators, again.”
On 21 September ETC Group launched another exchange-traded product on Deutsche Börse – BCHetc , a Bitcoin Cash ETP. The product is fully fungible with Bitcoin Cash and marketed and distributed across Europe by HANetf, alongside ETC Group’s existing physical ETPs based on Bitcoin, Ethereum and Litecoin.
Bitcoin Cash was chosen with only three other cryptocurrencies to form the backbone of payments services Venmo and Paypal’s crypto strategies in October last year, putting Bitcoin Cash in reach of millions of new users in the US and across the world, according to ETC Group.
Bradley Duke, chief executive of ETC Group, said in a statement: “We expect BCHetc – ETC Group Physical Bitcoin Cash to prove popular with professional investors who want a cleaner, simpler and more secure way to gain exposure to the booming investment universe of digital assets.”
On 21 September Deutsche Börse also listed three ETNs from VanEck on the cryptocurrencies Polkadot, Solana and TRON.
The German exchange said it has now listed 18 crypto ETNs from six issuers on seven cryptocurrencies allowing investors to avoid using unregulated crypto venues.
“With an average monthly order book turnover of €900m, Deutsche Börse’s Xetra is also the leading trading venue for crypto ETNs in Europe,” added the exchange.
The Fidelity Digital Assets’ 2021 Institutional Investor Digital Assets Study found that nearly all, 84%, of US and European investors said they would be interested in institutional investment products that hold digital assets.
The report said that European investors showed a greater propensity for digital assets than surveyed US investors for the second year in a row.
Fidelity added: “We believe this ongoing trend may be in part due to a greater number of regulated investment products that offer digital asset access in European markets, which offer a familiar structure to retail investors and may help build trust with institutions.”
The US Securities and Exchange Commission has yet to approve a Bitcoin ETF. In the survey nearly two-thirds, 62%, of US investors expressed a neutral-to-positive view about a potential Bitcoin ETF.
“A regulatory structure for exchange-traded products holding Bitcoin exists in Europe and Asia and, not surprisingly, these products remain appealing to surveyed investors in these markets – only 33% of European and 22% of Asian investors found a Bitcoin ETF unappealing,” added Fidelity.
The financing round raises the cryptocurrency exchange's valuation to $25bn.
The first bitcoin-related ETF has listed in the US.
The Evolve Cryptocurrencies ETF gives exposure to both bitcoin and ether.
ISDA has established a digital asset legal and documentation working group.
Coinbase is seeking clarity around crypto accounting standards.