Themis Trading LLC, an equities brokerage agency for institutions, has joined the attack on CME Group’s decision to launch bitcoin futures. A recent blog on the company’s website argues that the U.S. Commodity Futures Trading Commission (CFTC) should not approve CME’s bitcoin futures.
Other Wall Street investors have also spoken out against CME’s bitcoin futures and compared it to collateralized debt obligations that caused the 2009 financial crash.
Calling themselves “market structure critics,” Themis Trading states right off the bat that they are “by no means cryptocurrency experts” and have joked that they would never write a note on blockchain.
CME Reverses Its Position
The blog takes CME Group President Bryan Durkin to task for reversing his position from a couple of months ago that he had no intention to launch bitcoin futures. The blog cited a Bloomberg TV interview in which Durkin said he doesn’t see going forward with a futures contract in the near future since bitcoin is “very nascent right now.”
The reason for his reversal can be found in CME CEO Terry Duff’s acknowledgment that clients are demanding such a product, the blog noted. Another reason is that CBOE announced plans to list bitcoin futures and LedgerX is already trading options and swaps.
Exchanges Cave To Demands
Themis Trading views bitcoin futures as part of a problem that has been going on in the equities market for years. Big, high-frequency clients demand a product from exchanges that are willing to comply because they don’t want to lose an opportunity, even if they themselves have reservations about the product.
Major equities exchanges such as BATS and NYSE get fined millions of dollars as a result of caving in to big clients for sending market data to certain customers before other customers and for not disclosing special types of orders.
Themis Trading believes CME knows the underlying bitcoin market is “very suspect.” CME knows, according to the blog, that bitcoin exchanges have been subject to many fraud cases over the past few years, and that there is no regulation of bitcoin exchanges.
CME rationalizes creating a futures product based on “an underlying market of bucket-shop type exchanges” by creating a reference price called the CME CF Bitcoin Reference Rate, a volume-weighted average of 5-minute time intervals that a select group of bitcoin exchanges provides. The averages were necessary since bitcoin spot prices have varied a lot across trading venues, especially during periods of high volatility, CME has noted.
The creation of an index serves to legitimize bitcoin trading, the blog observes.
Bitcoin Still Risky
The SEC stated in denying the Winklevoss bitcoin ETF there is a lack of regulation of bitcoin exchanges. One observer noted at the time that illegal practices would be easy to implement and impossible to detect.
Themis Trading claims it would be dangerous for the CFTC to approve the bitcoin futures proposals, given the SEC’s concerns about lack of regulation. Themis Trading compared the proposal to collateralized debt obligations sold during the financial crisis – instruments that gave a sense of approval for high-risk mortgages. A bitcoin future would give a similar approval to an unregulated and risky instrument with a history of fraud.
Themis Trading further fears that such approval would sway the SEC to approve bitcoin ETFs, which would get buried in portfolios that lack risk tolerance for trading unregulated assets.
The company claims it is not anti-futures, anti-bitcoin or anti-ETF, only anti-fraud. Until bitcoin exchanges “clean up their act” and address the surveillance issue, derivative cryptocurrency products should not be approved.
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Last modified: March 4, 2021 5:01 PM