CME Group Inc., the operator of the Chicago Mercantile Exchange, announced Tuesday that it intends to launch bitcoin futures trading by the end of the year.

Pending regulatory approval from the U.S. Commodity Futures Trading Commission, the move would be a U.S. first. It would see the exchange offer and trade bitcoin futures contracts, a form of tradable forward agreement that allows a holder to buy or sell something, in this case, bitcoin, at a predetermined price at a specified time in the future.

For bitcoin, this would mean that someone could buy a futures contract on bitcoin that would allow for the purchase or sale of the cryptocurrency at a set price per bitcoin. For example, a bitcoin futures contract could offer the right to acquire 100 bitcoins at a fixed price of, say, $8,000 in six months’ time.

The bitcoin futures contract will be cash-settled based on the CME CF Bitcoin Reference Rate, a pricing service the exchange uses that delivers a once-a-day reference rate of the price of bitcoin in U.S. dollars. The futures will be subject to the same rules as other futures contracts traded on the exchange.

“Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract,” CME Group Chief Executive Officer Terry Duffy said in a statement.  “As the world’s largest regulated FX marketplace, CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities.”

The decision to support bitcoin futures contracts on the exchange came as a surprise to many, given that CME Group President Bryan Durkin told Bloomberg only two months ago, “I really feel that bitcoin is very nascent right now. I really don’t see us going forward with a futures contract in the very near future.”

That CME is going forward with bitcoin futures trading is a big boost for bitcoin at a time of global uncertainty led by crackdowns in Russia, China and Vietnam. The markets loved the news, as the price of bitcoin rose to a new record high of $6,454.33 in trading Tuesday.

Unlike previous highs which have usually resulted in heavy profit-taking, bitcoin was trading just below that high of $6435.53 several hours later in what could be the start of a new bull run kicked off by the CME Group news.

Photo: liz_noise/Wikimedia Commons