Although news of CME's plans to launch bitcoin futures by the end of the year has faded somewhat since the backers of the SegWit2x hard fork protocol announced the cancelation of the impending fork, the bitcoin futures plans may have a dramatic and long-lasting impact on the way that bitcoin operates. CME, the world's largest exchange operator, prompted a huge rise in bitcoin prices when it announced earlier in the month that it would begin to facilitate trades of bitcoin futures at some point before the end of 2017. Along with that new product, Crypto Coins News reports that CME may impose limits on the price fluctuations of bitcoin in order to avoid extreme volatility. Price fluctuations have been a hallmark of all virtual currencies, and bitcoin in particular, from essentially their earliest days.
Trading Halts and a "Hard Cap"
CME will reportedly impose trading halts for a number of tiers of bitcoin price movements, as well as a "hard cap" which will restrict price swings at a certain level for any day. There will be multiple "soft limit" thresholds, taking effect at 7% and 13% wither above or below the previous day's settlement price. When a price swing of this level occurs, there will be a "two-minute pause in trading" for bitcoin futures. If the price climbs or falls by 20% or more in a single day, there will be a system-wide hard cap which will prevent all trading of bitcoin futures products for that day.
How does this compare with recent bitcoin price fluctuations? So far, bitcoin has swung by at least 20% on two days so far this year. It has achieved swings of 13% or more on 11 days, and fluctuations of at least 7% on 69 days for the year. This suggests that the soft and hard limits on bitcoin futures trading may take effect relatively often.
Limits Are Not New
CME has utilized similar limits in the past and for markets ranging from stock futures to gold and oil. Still, the widespread and extreme volatility that investors have come to expect from a cryptocurrency like bitcoin may test these limits more than those other areas. CME's chairman emeritus Leo Melamed, who founded financial futures, explained that his group would "tame" bitcoin. He stated that "[CME] will regulate, make bitcoin not wild, nor wilder. We'll tame it into a regular type instrument of trade with rules."
Of course, CME cannot place limits on the fluctuation of bitcoin prices. These will adjust due to normal market factors and may continue to be just as volatile as before futures were introduced. However, depending on how impactful the introduction of bitcoin futures is to the overall price of the cryptocurrency, CME's regulation of the futures space may have a backlash effect on the currency itself.