Taming Bitcoin Price Swings: CME to Place Limits on Bitcoin Futures



Ahead of its planned bitcoin futures product, CME – the world’s largest exchange operator, will reportedly impose limits on bitcoin price fluctuations to avoid extreme volatility.

According to the Wall Street Journal, the CME Group will impose trading halts across different tiers of price movements and a “hard cap” to completely restrict price swings at a certain level on any day.

The first two ‘soft limit’ thresholds, as detailed by the report, will kick in at 7% and then again at 13% above or below the previous day’s settlement price to implement a ‘two-minute pause in trading’ of bitcoin futures. A complete circuit-breaker hard cap will prevent trading after price swings of over 20%, up or down, on any given day.

Bitcoin’s valuation data this year shows the world’s most prominent cryptocurrency swing over 20% on two days so far. Bitcoin price swung at least 13% on 11 days while price moved at least 7% on 69 days, underlining the volatility of a cryptocurrency fast becoming a store of value asset for investors.

CME has commonly operated with similar limits enforced in multiple traditional markets including gold, oil and stock market futures.

A little over a week ago, Chicago-based CME made the notable announcement of its intention to launch bitcoin futures before the end of the year, pending regulatory approval, a move that speculators believe will open the floodgates leading to institutional investors and liquidity coming into the cryptocurrency space.

CME’s plans to place limits coincide with the group’s chairman emeritus Leo Melamed, the founder of financial futures, stating this week that the exchange operator will “tame” bitcoin into a financial instrument that plays by the rules.

He said:

We will regulate, make bitcoin not wild, nor wilder. We’ll tame it into a regular type instrument of trade with rules.