Is CME Group crazy? Lemmings, form an orderly line…..

Eleven years after the emergence of dubious cryptocurrencies onto the peer to peer market, and countless frauds, bankrupt exchanges which have no real assets, US Department of Justice seizures of entire enterprises, FX brokers losing an absolute fortune and bow tie-clad mavericks having their collars felt whilst running away to Costa Rica should be enough time and experience to understand the pitfalls of a non-existent, unbacked fake currency which is the preserve of rebels and bandits.

Today, however, the glutton for punishment is no other than one of Chicago’s largest listed derivatives venues which conducts the electronic execution of pretty much every asset class for every market participant globally.

CME Group has launched the trading of Etherium futures today, and the PR opportunists and crypto bandwagonists have resorted to the opinion of Israeli crypto chancers as voices of reference.

Lior Messika, Founder and a Managing Partner at Eden Block said “With the Ethereum network enabling tens of new “crypto unicorns” in the last year, ETH is poised to become a clear focal point for investors seeking exposure to the broader innovation enabled by crypto, and its now numerous use cases.”

“In many ways, Ether is still much earlier than Bitcoin in its potential. While the narrative of Bitcoin has been proving itself for more than a decade, Ethereum’s ability to serve as the base layer for almost all innovative crypto networks, is only starting to get real validation in the marketplace. The explosion in value led by Defi in 2020 was a pivotal point for Ethereum and its associated currency, Ether” said Mr Messika.

“As institutions across the globe come to terms with the infinite potential of composable, decentralized infrastructure, ETH couldn’t be better placed to become a legitimate asset within mainstream and global markets. The listing of Ether futures will be another impetus for a parabolic increase in activity for the asset class, providing investors the access to a more nascent, and potentially faster growing segment of the crypto market. This will also allow investors to hedge existing Ethereum positions. CME’s recent announcement is aptly timed, with institutional appetite for the asset ramping up aggressively” he continued.

“Ethereum is transforming markets through decentralization, composability, and incentives. The growth associated with Ethereum is becoming evident, and the markets are preparing for what could be a colossal turning point for the network and the currency” said Mr Messika.

This is a very pro-crypto diatribe which looks to position Etherium as a genuine tradable asset.

An interesting position given the incredible amount of cryptocurrency related fraud that has emanated from Israel, and the ICO token con artists who morphed from binary options scams, led by the same people in the same ramshackle buildings in the back streets of Ramat Gan.

In this instance, it is odd that CME Group would allow cryptocurrency futures given the tremendous risk, history of total disaster, the type of individuals that operate crypto firms, and its banned status in major regions of financial markets prowess such as the United Kingdom.

The OTC derivatives sector is ahead of the curve in this respect, largely resulting from the losses sustained by some retail brokerages at the end of 2017 in just a week as a result of offering Bitcoin CFDs.

FinanceFeeds received documentation at that time that demonstrated substantial losses sustained by the few retail brokerages that have allowed unrestricted cryptocurrency trading on their platforms, and unlike losses sustained by firms that transfer their orders to liquidity providers and become exposed to negative client balances in the case of extreme and unpredictable market volatility, as per the Swiss National Bank’s removal of the EURCHF peg in January 2015, these are losses sustained by categorically ‘b-book’ brokerages which internalize their trades.

There is no way to price or clear Bitcoin trades. No liquidity provider or prime brokerage will entertain it, as it is not a centrally issued currency, and Tier 1 banks only deal in centrally issued currency when extending counterparty credit to FX brokerages, hence its status as a commodity.

In one case, a well known retail brokerage which has a less than clean copybook in terms of due diligence when onboarding clients via its very unorthodox methodology in the United Kingdom has, according to documentation submitted to FinanceFeeds, lost approximately $40 million as a result of allowing Bitcoin trading on its retail platform in just one week.

The firm concerned carried on, but implemented a 20 minute maximum trading window for Bitcoin, meaning that the broker automatically closed trades after 20 minutes on all Bitcoin related activity. This is almost like a long binary option, however based on a currency which does not exist, and a commodity that cannot be delivered nor demonstrate physical value.

This particular broker, according to a number of its strategic partners, became unable to pay  its affiliates and began withholding said payments.

What is really unacceptable is the lack of reporting transparency in this case, and the regulatory authorities’ wrong direction when addressing risk.

Shortly after this incident, some of the most widely renowned brokerages in the world had to respond to FCA and ESMA guidelines relating to CFDs. British firms have been successfully providing CFDs to loyal and sensible British customers for decades, without problems of any kind, yet are subject to absurd and misguided regulatory wrangling.

Since then, the FCA has done the right thing and banned cryptocurrency trading.

In December 2017, FinanceFeeds spoke to an actuary in London who is very close to this matter, who explained

“The majority of retail clients want to buy so in this case, the market makers are short with no real legitimate route to hedge. It is currently unclear if the exchange offerings from CBOE and CME Group can alleviate that issue.”

At the same time, in December 2017, CME Group listed its first exchange traded Bitcoin futures contract under the BTCF8 symbol for January expiry. With a centralized exchange, clearing is possible as the exchange members all have to pay clearing fees.

Yet, firms offering risky fake currency and allowing themselves to be plunged into financial insecurity whilst providing a platform for their clients to lose more than just their shirt are free to do as they please, including list their stock on stock exchanges and have it go up by 5% when a massive unknown hole has been blown in its balance sheet, leaving the good quality firms that are doing it properly to carry share price decrements as a result of a completely misguided regulatory stance.

And now here we are, in 2021, and Etherium is going live on CME Group. Do we all never learn?