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Rise in Bitcoin Futures Volume Forces Credit Agencies to Downgrade Dealers

Rise in Bitcoin Futures Volume Forces Credit Agencies to Downgrade Dealers

In April, it was reported that bitcoin futures markets saw a steady increase in their volume. Recently, it was announced that products from Cboe and CME Group are still experiencing popularity even after bitcoin reducing to considerable lows.

The month of June has been extremely negative for crypto markets which have already been struggling to achieve the heights it ascended last year. The most popular virtual currency, bitcoin core, has lost more than $13,000 in the first half of the year.

The value of BTC spot went down after the establishment of the Cboe and CME Group futures market. It is to be noted that these platforms did not meet with much business after their initial days with less than hundred contracts per day.

Since then, things have changed as both marketplaces have enjoyed an increase in demand for contracts starting from April. On June 11, BTC futures from CME Group greeted more than 3,800 contracts expiring in this month. On the other hand, another giant from the industry, Cboe, enjoyed over 8700 contracts for June 11 which hints that a bearish market leads to an increased interest in futures. After Cboe announced the sales of 19,000 contracts on April 25, the average derivate sales for both the companies have been significantly progressive.

But, as futures market functions, an increase in business will involve financial institutions and clearing houses in the equation. It is believed that credit agencies will be enforcing a credit downgrade to prevent over sales of new contracts.  Recent reports suggest that major three rating agencies, S&P, Fitch and Moody’s are discussing about a potential downgrade in credit ratings for banks that clear bitcoin futures.

In October 2016, Standard & Poor’s (S&P) Global, came out with a report that stated the affect blockchain development would have over credit ratings of banks that will employ the technology. Earlier in February, credit agencies looked to downgrade financial entities in case of a volatile increase in the sale of contracts.

However, the report also stated that it is hard to speculate on the extent of impact blockchain will have on the company’s ratings in the industry. The report added that S&P believes “that at the very least blockchain presents an opportunity for financial institutions which can “even generate new revenue streams.”

These agencies believe that providing ratings for BTC based futures is highly risky to the extreme volatility of the market. In case a downgrade is imposed all clearing houses will get affected including banks that provide the contracts directly.  Their decision can disturb asset management of any financial entity with its lending requirements.

According to experts, the steep decline in crypto space is due to future products based on digital currencies. The example can be taken from the impact derivate products had on precious metals market and lots of other businesses.

It will be interesting to see the effect downgrade would have upon people interested in bitcoin futures. It is hoped that the step would uplift the crypto space and balance trades in the derivatives market.

About the author

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Joel Degan

Joel is an entrepreneur specialized in the international business development and project management. He graduated from Indiana University’s Kelley School of Business with a degree in Finance and International Business. He is currently working on decentralized autonomous organization (DAO) along with CoinIndeed.

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