By Gertrude Chavez-Dreyfuss and Anna Irrera
NEW YORK (Reuters) - CME Group Inc (O:CME), the world's largest futures market operator, said on Tuesday it intends to launch bitcoin futures in the fourth quarter, pending regulatory approvals.
The new contract will be settled in cash, based on the CME CF Bitcoin Reference Rate (BRR), a once-a-day reference rate of the U.S. dollar price of Bitcoin. Bitcoin futures will be listed on and subject to the rules of CME.
Since November last year, CME Group and UK-based bitcoin futures exchange Crypto Facilities Ltd have calculated and published the BRR, which consolidates the trade flow of major bitcoin spot exchanges during a calculation window into the U.S. dollar price of one bitcoin as of 4:00 p.m. London time.
Cryptocurrency exchanges Bitstamp, GDAX, itBit and Kraken currently contribute prices for calculating the BRR.
"Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract," said Terry Duffy, CME group chairman and chief executive officer.
The launch of a bitcoin product by a large regulated exchange institution could help cryptocurrencies gain legitimacy in mainstream finance. Some cryptocurrency exchanges have been hit by fraud and deception, a Reuters special report showed last month. (http://reut.rs/2xLhbNZ )
Bitcoin jumped to an all-time high above $6,400 on Tuesday on the BitStamp exchange after the CME news. It was last at $6,352.07
This year's bitcoin rally has created a divide on Wall Street.
Many large institutions support the use of blockchain, the technology underlying cryptocurrencies, to improve back office processes. Yet some bankers oppose doing business with actual cryptocurrencies that are not backed by national governments and have been involved in scandals.
Other like CME see crypto-currencies as a business opportunity. Rival exchange group CBOE Holdings Inc has applied with U.S. regulators to launch a bitcoin futures contract and a bitcoin exchange traded fund on its venues.
"There are lot of people who want to participate in bitcoins and the blockchain technology so it should be well-received," said Greg Adamsick, director of global futures and options at RCM Alternatives in Chicago.
"This should legitimize bitcoin with the move by the CME. It should make it more comfortable for people to hold." he added.
CME and Crypto Facilities also publish the CME CF Bitcoin Real Time Index (BRTI) to provide price transparency. The index provides a spot price that reflects instantaneous U.S. dollar price of bitcoin.