Eurex takes the first step in crypto derivatives

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Eurex has launched Bitcoin ETN Futures and could potentially launch options or futures on other crypto exchange-traded notes if the derivatives arm of Deutsche Brse Group receives regulatory approval.

Randolf Roth, Eurex

Randolf Roth, member of the board of directors of Eurex, told Markets Media: The Future Bitcoin ETN is our first product in the crypto space and probably won’t be the last, but the space is the subject of ‘significant regulatory attention.

The derivatives exchange launched on September 13 the first regulated market for Bitcoin-related derivatives in Europe. The futures contract is based on the ETC Groups BTCetc Bitcoin Exchange Traded Crypto, which is listed on the Frankfurt Stock Exchange.

Roth said: Crypto assets are too big to disappear and we need to find a way to ensure trade in a healthier environment.

He continued that there had been consistent price quotes for all time frames and even some initial turnover since the future Bitcoin ETN started trading.

However, this remains at a low level, 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 whole new segment that our customers and the market need to adapt to.

Sascha Semroch, head of product development at Eurex, told Markets Media that Eurex’s micro EURO STOXX 50 contract traded 22 contracts on day one and now trades 14,000 contracts per day after five months.

Many customers just want to see the future of Bitcoin before doing their internal work and will wait to see how the volume develops, especially for a more exotic commodity, so it will take a little longer to develop, Semroch added. .

Regulation

Semroch continued that a key regulatory issue was whether the design and concept of the product was part of Eurex’s clearing and licensing model.

We had to demonstrate that we were simply expanding the universe of futures on an underlying commodity traded on an exchange like we already have in oil or gold. he added.

In order to facilitate the approval process, Eurex has chosen to base the future of Bitcoin on a security that has been among the most traded ETF / ETN contracts on Xetra since its listing in June of last year.

Roth said: There is a strong regulatory focus on crypto, so it made sense to pitch the future on a regulated financial instrument but, nonetheless, it took some time to complete the approval process. We are the first European exchange to launch crypto derivatives, so it is understandable that there is a lot of regulatory attention as we create more credibility for the segment due to our name and the way we organize the markets. .

Eurex had to prove to regulators that it has a solid and robust risk model, because Bitcoin is very volatile. The currency risk model calculates the most extreme movements with a certain probability for the initial margin – which is higher than in asset classes with lower volatility.

Our clearinghouse has many liquidation groups and we now have one dedicated to crypto assets, Roth added.

Source: Eurex

Futures contracts target institutions that wish to gain exposure to the price of Bitcoin, without the need for a digital wallet, and who wish to trade on a regulated exchange using the same central clearing infrastructure as for their other derivative transactions.

The new contract trades in euros and is physically delivered in the ETN, which is 100% bitcoin backed and can be easily redeemed by any investor for the underlying bitcoin.

Once the futures volume increases, we could also launch options on the Bitcoin ETN if there is demand from clients, Roth added. But this once again requires new conversations with our regulators.

Cryptographic ETNs

On September 21, ETC Group launched another exchange traded product on Deutsche Brse – BCHetc, a Bitcoin Cash ETP. The product is fully fungible with Bitcoin Cash and marketed and distributed across Europe by HANetf, alongside the existing physical ETPs of ETC Groups based on Bitcoin, Ethereum and Litecoin.

Bitcoin Cash was chosen along with just three other cryptocurrencies to form the backbone of crypto strategies for payment services Venmo and Paypals in October of last year, putting Bitcoin Cash within reach of millions of new users in the United States. United and around the world, according to ETC Group.

Bradley Duke, ETC Group

Bradley Duke, Managing Director of ETC Group, said in a statement: We expect BCHetc – ETC Group Physical Bitcoin Cash to be popular with professional investors who want a cleaner, simpler, and more secure way to go. expose to the booming investment universe of digital assets. .

On September 21, Deutsche Brse also listed three VanEck ETNs on the Polkadot, Solana and TRON cryptocurrencies.

The German exchange said it has now listed 18 crypto ETNs from six issuers on seven cryptocurrencies, allowing investors to avoid using unregulated crypto sites.

Source: German Stock Exchange.

With an average monthly turnover of 900 million orders, Deutsche Brses Xetra is also the leading trading platform for crypto ETNs in Europe, the exchange added.

Fidelity Digital Assets’ 2021 Institutional Investor Digital Assets Study found that almost all, 84%, of U.S. and European investors said they would be interested in institutional investment products that hold digital assets.

The report says European investors showed a greater propensity for digital assets than US investors polled for the second year in a row.

Fidelity added: We believe this current trend may be due in part to a greater number of regulated investment products that provide access to digital assets in European markets, which provide a familiar structure to retail investors and can help build trust with institutions.

The United States 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 opinion on a potential Bitcoin ETF.

Source: Fidelity Digital Assets.

A regulatory structure for exchange-traded products containing Bitcoin exists in Europe and Asia and, unsurprisingly, these products remain attractive to investors surveyed in these markets. Only 33% of European investors and 22% of Asian investors found a Bitcoin ETF unattractive, Fidelity added.

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