The Wolf Of All Streets - Why Bitcoin & Ethereum Futures Are Becoming So Popular | Payal Shah, CME Group

Starting point is 00:00:00 This episode is sponsored by Arculus and Bullish. Stay tuned for more information on both of them later in this episode. What's up, everybody? I'm Scott Melker, and this is the Wolf of All Streets podcast, where two times every week, I talk to your favorite personalities from the worlds of Bitcoin, finance, trading, music, art, sports, politics, basically anyone with a good story to tell.

Starting point is 00:00:32 Now, with any financial market that's nascent and starts small, eventually you start to get more sophisticated products for investors to focus on. And one of the most important products in any market is futures, which were added by the CME famously in 2017. And those products have evolved over time. Well, today's guest is the director of equity and cryptocurrency products at the CME Group. And so she probably has more insight into what's happening in the derivatives and future market than arguably anybody else on the planet. So I'm really excited to talk about that with her, how institutional money moves in the crypto market and what they have coming potentially in the future. Payal, thank you so much for joining me on the show today. Oh, absolutely delighted. Thanks for having me.

Starting point is 00:01:14 So listen, for people who don't understand, as I touched on, these markets sort of evolve over time and you get more sophisticated products. Why are futures important? Why did you start to offer this product in the first place? Yeah, sure. So maybe a good place to start might be CME's kind of history or journey into the crypto space. So our journey started into crypto back in 2015, 2016. And in 2016, we initially launched the Bitcoin reference rate. And that was in direct response to customer needs to start getting into Bitcoin and crypto. And back then, the price on all the different spot exchanges

Starting point is 00:02:00 was hugely varied. So you had all these frictions, KYC, AML, the kimchi premium out in the Far East. And so there wasn't a central price of Bitcoin. There wasn't a point that we could, as a financial marketplace, we could point to and say, this is the price of Bitcoin. So back in 2016, we launched the Bitcoin reference rate, we then launched our standard size Bitcoin futures contract. And that has a five contract multiplier. So five, five times Bitcoin back in 2017. And then fast forward, you know, things got a little bit more quicker in terms of our development, we launched a Ether reference rate and then Ether futures.

Starting point is 00:02:48 And 2021 was absolutely phenomenal for us. We launched four crypto products. We launched standard Ether contracts and then also the micro size contracts. So really, you know, for us, what was important is a mechanism to give our clients access to cash settled derivatives on a regulated exchange. And really, that was important for three reasons. You know, firstly, there was ease of access. So by trading on the CME, you don't need a wallet. You don't need to understand exactly how the crypto spot platforms work, you're not necessarily open to hacking or you don't need insurance and you're protected a little bit from some of those outages or flash crashes or auto liquidations that happen so

Starting point is 00:03:39 often on the spot exchanges. And so by being a cash settled contract, it just plugs and plays into the same way that every other futures contract does. So really, it's no different to trading the S&P or a gold contract, and it's settled in US dollars. And by having that financially settled contract, you mentioned earlier, you know, it takes away some of those strains of the network. And therefore, people can, especially institutionals, can take that first step into crypto, because, as I say, they don't need to handle the underlying, they don't need to know the intricacies of the network. And so, you know, the biggest reason is ease of access. The other reason that, you know, we started with futures and a cash settled future was the fact that counterparty risk is mitigated. So, you know, we, as the exchange, we are the buyer to every seller and the seller to every buyer. And so, you know, trading on a

Starting point is 00:04:40 regulated marketplace where the rules of the road are very clear. They're very transparent. They're tried and tested. So again, you know, for an institutional getting into crypto, it's, they know the rules of the road. They've been doing, they've been trading all of these other futures products with us for so many years that this is just applying that, that same, those same rails of the road to crypto and kind of making it a little bit easier. And I guess finally, you know, the key thing for us in terms of launching these crypto products is that they were all based on an index. So the same index that I spoke to earlier, that although their futures contracts that settle on the last Friday of every

Starting point is 00:05:24 contract month, they actually settle to that index on the last Friday of every contract month, they actually settle to that index. So again, it takes away, by having an index, you're taking away some of the nuances or the dependency on any one index. So we're chuffed with how well the recent launches have gone, absolutely delighted with the product offering and how we were able to expand that. But really, it was in direct response to our clients' needs to access a regulated market for cryptocurrencies. And what role do futures in general play in price discovery, in making a market more efficient? Just in general, how do futures sort of help improve a market?

Starting point is 00:06:11 Yeah. So, you know, as the name suggests, a futures contract is a contract between two counterparties where they agree to the price now for a future date and time. And so what we're trying to do is, you know, CME has a 180-year-old history, right? We started as a butter and eggs exchange way back when. We then, we were the first to create corn futures, financial FX futures, equity futures. So we were trying to put all the lessons that we learned on all of those products onto this new asset class that is crypto. And some of those benefits start coming through. So having that regulated marketplace for us to be the seller

Starting point is 00:07:01 to every buyer and vice versa, removing that counterparty risk, having the checks and balances in place that you don't suffer from auto liquidations if the market moves against you. We have some price halts in place. We have all of these kind of tried and tested approaches that will help the ecosystem and will help bring access of crypto, Bitcoin and Ether to both institutionals and the active trader. So you touched on the fact that when you launched it, I believe in December of 2017, Bitcoin

Starting point is 00:07:36 was around $20,000 and it was a minimum five contracts. So you had to be trading with $100,000. And as a retail person, you actually would have had access that I, through a broker, right? You couldn't have done it yourself. So this was primarily, at least initially, I presume, a institutional product for people with access to relatively large capital. So you eventually, I believe, started to offer other products like the Bitcoin mini futures. Is that why you added micro futures? Is that why you added them to give access to people with a bit less capital?

Starting point is 00:08:13 A hundred percent. Yeah. So again, it was in direct response to our clients' needs and even the institutional needs as well. As you say, the price of Bitcoin rallied from when we launched the contract. In December 2017, it was $20,000. It reached a high of $65,000. And that contract just became too large with a five times multiplier for Bitcoin

Starting point is 00:08:40 and a 50 times multiplier for Ether. Those contracts just became a little bit too large, both for the institutional client and for the active trader. So really the idea behind the micro contract, which is sized at a 0.1 multiplier. So a tiny, tiny contract, you take Ether, right? Trading at what? $2,000, $3,000 today? At 0.1 multiplier, we're talking about a $300 contract. So the micros offer three things, in my opinion. They offer choice. If you can access the larger one and for roll costs and things like that, if you need access to the bigger one, great. But there's now a choice. You have the larger standard contracts contracts you have the micro contracts they offer flexibility and they offer precision and that's what we're finding that with the institutions

Starting point is 00:09:29 they might be coming and trading both the the standard size and the micro just to get that precision that they need in terms of their hedging but also it opens up to active traders to the retail traders through their fcm to to access a regulated product with all of those benefits that I mentioned. But now, you know, you don't only have to go to your spot exchange to trade crypto. You can actually come to the CME for Bitcoin and Ether. And often when you go to your spot exchange, as you touched on earlier, it goes offline during times of volatility. It's not there when you need it. You don't even have the ability to buy and sell sometimes when price is moving rapidly. And that obviously never happens on the CME, which is a huge benefit that you touched on. You probably

Starting point is 00:10:14 then have a lot of insight as to how the big players are moving their money or who they are, because these contracts generally were so large. So who are the primary customers? What kind of customer are you seeing trading these contracts on the CME? Yeah, I mean, from the institutional side, there has been a real upwelling of interest that's come from banks, from asset managers, and, you know, from other firms that you've seen from recent announcements, you know, all the corporates that are starting to use Bitcoin as part of their corporate strategy. And I think the main thing for me, what I've really noticed from 2017 to now is how that conversation has changed. Back in 2017, the conversations were more around

Starting point is 00:10:58 what is Bitcoin? What is Ether? What is crypto? Is it right for me? Is it right for my investors? How do I get access? Should I be getting access? And that over the pandemic, over 2021, and certainly into 22, that has changed 180 degrees. That conversation is now, how do I get access? How can I get crypto into my portfolio? And I think as people have become more comfortable with the returns that Bitcoin generates, some of those uncorrelated risks that it adds, the conversation definitely has evolved. We're seeing that with the involvement of the introduction of new contracts, the ETF in the US that is a futures-based contract. Again, access to more participants, to more users of crypto. So, you know, on one side that conversation has definitely changed. On the other side,

Starting point is 00:11:56 what we're seeing is the personas or the personalities, you know, in our Bitcoin and Ether market can be, you can draw parallels to the conventional equity market, right? So if we look at the miner, is he akin to the commercial grower, right? Does he need to hedge something? Yeah, you know, are there personalities that have digital spot positions that maybe don't want to liquidate them in the event of a price fall? They may be trading futures. Do you have people that want to monetize their portfolio? They may be using futures. You know, it's certainly easier to short with futures than trying to locate the physical. Right. So, you know, just taking that example of the miner, for example, right, that we with Bitcoin, we have a term structure. So the way that our contracts are

Starting point is 00:12:52 created is that we have six monthly contracts and then two Decembers. So right now we're trading all the way out to December 2023. And so for a miner, that's incredibly useful, right? He can use that term structure to figure out how much he should be mining now, how much they should be investing in CapEx or buying new servers or things like that. And they can lock in some of those informed decisions into their business right now. And that's not dissimilar to what we see in energy or gas. So, you know, what we're seeing is, you know, a new asset class that's forming, a new crypto players that are coming to the market that we didn't necessarily see, you know, crypto native. Then we've got the banks and the institutions that have started to look at

Starting point is 00:13:46 crypto assets and the conversations there have really changed. But the personas are starting to resonate with traditional personas that we see in other markets. So it's a real melting pot. And I think because of that melting pot, we have price discovery, price transparency in our markets. And the futures are the center of that price discovery for Bitcoin and Ether. Right. And I want to talk a little bit more about the miners hedging, because that's such an interesting topic. How would they actually do that? What would be the process? I mean, I think we all understand that miners are generally bullish on Bitcoin, right? They're the ones who are actually mining it. They might want to avoid having to sell it. Like you said, there might be factors that have to do with their investment in

Starting point is 00:14:37 it. But how would they actually use this contract to protect themselves? Sure. So all of our contracts, Bitcoin, Ether, and all of the other asset classes that we offer futures contracts on are all accessed through an FCM or a broker. So the miner would need to get in touch with the broker. They would be able to set the miner up. And the way that the future works is that they would be a margin requirement. So to, you know, it's not fully funded in the same way that the spot crypto is. So if you're buying Bitcoin on one of the spot exchanges, you would have to put down the full value of your trade. With futures, it's slightly different. You're just required to put that

Starting point is 00:15:23 initial margin down and then pay your variation margin on a day-to-day basis. So the process is incredibly simple. All that burden is almost taken away from the miner and onto the broker or the FCM that manages that relationship. So CME do not have any direct client relationships. Everything is managed through that central broker. And that acts in a different way that, you know, we touched on liquidations earlier. In the event of a liquidation, or in the event of, you know, a big down run in the markets, it is the responsibility of the broker or the FCM to reach out and maintain that account.

Starting point is 00:16:09 So they would make some margin calls. And therefore overnight, you're not being liquidated, right? You can go to, on a Friday evening, you can rest easy, but your crypto is, your Bitcoin or Ether is doing all right. Yeah, that makes sense. So with the miner, effectively, they're looking to short as a hedge against their long position.

Starting point is 00:16:31 Is it a cash and carry trade? Is it just a straight up hedge? What are they looking to do there generally? Yeah, I mean, it's a number of things, right? It's, yeah, I mean, it's both of those things that you mentioned. Because I mean, the cash and carry trade when futures were launched became so popular. Obviously, you know, buy spot, short the future as they come together, it's basically free yield. And I think people maybe don't understand, but that's how a lot of the platforms that are offering

Starting point is 00:17:02 yield in crypto have been doing it for years. And that didn't exist before you guys launched your contracts in 2017. Really, I mean, it was something that people couldn't do. And it's very interesting. So you mentioned that you guys have contracts priced out to December of 2023. What are those contracts trading at now? So the Bitcoin contracts, as I mentioned, actually for all, you know, the one key thing that we wanted to do for the crypto suite is to make it as simplistic as possible to understand. So for standard Bitcoin, standard Ether, micro Bitcoin and Ether, all of those contracts have a structure where we have six monthly contracts. So you could buy the January contract is up for maturity tomorrow. So they settle on the last Friday of every contract month. But we have six monthly contracts plus the two Decembers.

Starting point is 00:17:59 So, yeah, right now for the entire suite, you can trade all the way out to December 23. And there are some margin offsets. So if you are longer Bitcoin contract and short an Ether contract, you could be able to let off the margin. So really encouraging trading in that entire suite. You obviously talked about the fact that you have Bitcoin and Ethereum contracts. Have you seen interest in any other cryptocurrencies or those things you would consider adding? Yeah. So, I mean, there's so much interest from DeFi, from Web3. Our clients are constantly looking at the space as are we. So right now, we don't have any plans for anything

Starting point is 00:18:42 aside Bitcoin and Ether that's keeping us incredibly busy. But it is something that we continue to monitor the space and we look to, but yeah, no plans to do anything else right now. So you said it's keeping you incredibly busy. Just how big is this market for you? I guess in a vacuum, but also relative to your other markets? Sure. I mean, so for Bitcoin, the growth has been phenomenal. When we launched that contract back in 2017, we were doing about a thousand contracts a day. Fast forward to now, we're doing 10,000 contracts a day. In the micro space, we're doing 30,000 contracts, you know, and this week alone, in the micro ether contract, we were doing 50,000, 60,000 contracts. So it's a sizable market that we're seeing. And, you know, the key, the other key metric that we monitor a lot for is large open interest

Starting point is 00:19:39 holder, which is interesting, right? From an institutional perspective, a large open interest holder is any holder that holds in excess of 25 contracts. So they're holding a sizable chunk. And as we see that report growing, that's a report that comes out from the CFTC, we're continuously seeing that large open interest holder, we're seeing for, in excess of 100 large holders. So that's 100 different firms holding that level of investment in Bitcoin

Starting point is 00:20:13 futures contracts. And that's, you know, that's growth in the Bitcoin market, the Ether market, that we've been incredibly surprised and happy with, you know, the growth in four years. And to see, you know, 30,000 contracts on the micro being traded, that's a big number by any account. So yeah, incredibly happy with how it's going. That's a huge number and leads to the obvious next question, which is, have you seen an increase or decrease in one versus the other? Has Ethereum, you know, been catching up to Bitcoin at all? Does that kind of wane and there's different times where one is more in demand? What is that interplay like?

Starting point is 00:20:55 Yeah. So, I mean, for Ether, there's been so much interest, you know, in DeFi, Layer 2, stable coins. You know, most of those are based on the Ethereum network. And when you look at that backdrop, we've definitely seen a shift from Bitcoin into Ether. I guess what I would say is that Bitcoin, you know, being the original, it's the one that most of our counterparties, most of our institutions, it's Bitcoin that they take the first step with, and then a shift into Ether, and then the interplay between the two. So having that ecosystem with the four different contracts, Bitcoin options also, there is a nice interplay,

Starting point is 00:21:38 but certainly a lot of interest in Ethereum of late, from November 2021 into 22. And that is just set to increase. So really excited to see growth there. Guys, I'm so excited to tell you about this new crypto cold storage solution called Arculus. Their cold storage technology keeps your crypto keys off the internet and on an Arculus key card. With no cables and no USB connections, it insulates you from the thousands of hacking attempts that happen online every single day. You can store, swap, and send your crypto all with a simple tap of your Arculus key card. And if someone were to get a hold of your card, it doesn't even matter because they have three-factor authentication, ensuring that the only person with access to your crypto is you.

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Starting point is 00:22:55 bullish bullish is a powerful new exchange for digital assets that offers deep liquidity automated market making and industry leading security combining the innovations of defy with the regulated environment of traditional finance, Bullish empowers users to trade with confidence across variable market conditions while secure in a regulated environment that's backed by multi-billion dollar liquidity contributions from the Bullish treasury.

Starting point is 00:23:18 Follow at Bullish on Twitter or visit thewolfofallstreets.link slash Bullish to learn more. Not investment advice, digital assets and cryptocurrencies are high risk products. Consult your professional advisor before dealing in them. Bullish's services are available in select locations only and not to US persons. Visit the wolf of all streets dot link slash bullish for important information and risk warnings. Yeah, I mean, anecdotally, it feels like over the last year, interest in Ethereum, both from individuals and institutions has increased. So it's interesting to see that,

Starting point is 00:23:44 I guess, in the data as well, especially, as you said, sort of accelerating at the end of last year. I know you're not speaking directly with your clients, but as this volume has sort of increased and the interest has increased, do you have any feel for whether these institutions that are looking for exposure are looking for it as a trade? Are they buying into the digital gold narrative? Are they looking at it as a trade? Are they buying into the digital gold narrative? Are they looking at it as a hedge? What's the narrative that's driving their interest?

Starting point is 00:24:10 Yeah, I mean, in terms of investment strategies, there's obviously a difference between Bitcoin and Ethereum. And it's really important to understand the characteristics between those two. And as you say, Bitcoin was designed to act as a secure peer-to-peer decentralized payment system, security obviously being Bitcoin's first priority followed by speed. And Ethereum, you know, slightly different, more of a payment system, more decentralized, operates smart contracts. So, you know, we believe that they can co-exist exist. And that's certainly something that we've been hearing from our clients. What's interesting is the overarching interest in

Starting point is 00:24:51 blockchain technology, whether that's Bitcoin, Ether, all the other cryptos that are out there, the layer twos. And when we look at some of the stories in the media you know about corporations accepting bitcoin as payment some of those defi projects currently in the works there is a real need to manage some of those assets and liabilities on the balance sheet and you know we can't ignore the the growing interest from banks from asset managers um and you know that's certainly coming through so i think you know what what is most um exciting for me is that acceleration of how you know and and the curiosity of why now right um and all of those projects coming online and how we can be there to help manage clients' needs for risk management and for the price discovery. So, you know, in terms of the strategy, they're varied

Starting point is 00:25:55 and it's a real melting pot. But, you know, being there to be able to offer that price transparency, I think is right where we want to be. Yeah, I think that there was a feeling sort of in the run up over the end of last year that a Bitcoin spot ETF was going to be sort of this holy grail of products for institutional involvement for the sort of the big wall of money endowments, pensions, people who are looking, we didn't get it, right? We got a Bitcoin futures ETF. What has been sort of the relationship between your futures contract and the Bitcoin futures ETF? Do you think that people are looking to gain exposure through one or the other, both? Do you think people are using that product? It was very popular initially,

Starting point is 00:26:39 but seems to have waned quite a bit since. Yeah, I think it was a cautious first step from the regulator. In terms of our pipeline and the way that we created that Bitcoin reference rate all the way back in 2016, it was something that was always on our roadmap. And so creating that index in a way that we could settle futures contracts, it could be used to settle futures, ETFs, other funds. That was part of the reason of creating that reference rate. So as I say, I think it's a cautious first step from the regulator. I think it allows access again,

Starting point is 00:27:19 in a tried and tested way, right? An asset manager can simply add a Bitcoin ETF onto their list of funds in a very easy way that they can focus on what they're good at and their speciality. And just, you know, it takes away some of the complexities, right? Rather than having a Bitcoin listing, which could have its own complexities, this is just adding to that. So I think it's, you know, it's a great first step. And obviously, there are differences between a futures based and a spot based ETF, in terms of what you're actually holding in your basket, right. And then there's, you know, the roll costs that one has to take into account. There is an optimal liquidity window.

Starting point is 00:28:10 But I think in terms of institutions getting into the space, financial advisors being able to offer this out and getting comfortable with the idea of another way to access crypto. I think it's great from what we've seen so far from the regulators. Right. I mean, when ProShares launched, there was, you know, multiple billions of dollars in interest in the first weeks. And of course, Valkyrie followed very quickly with their launch. And it was reported, actually, that there weren't even enough futures contracts for them to purchase to put into the ETF. And they had to actually start looking out to future months, which of course then it's much harder to track the rate of the underlying spot price. But were those futures contracts being purchased from CME to place into the ETF? Is that how that works? Yeah. So being a futures-based ETF,

Starting point is 00:29:11 the fund manager will buy CME futures. The way the ETF is structured is that it doesn't necessarily have to be front-month contracts. So one of the things that we did once that ETF got off the ground is that we, in anticipation of, was to change our front month position limits. So they were increased from 2,000 to 4,000 back in October. And they actually have a step down. So the last three days prior to expiration, they stepped back down to 2000. And that's really, you know, to manage that role process. So what we're seeing is ETFs and other funds holding the front, second, third month. And it's creating a nice term structure. It's adding to the liquidity.

Starting point is 00:30:01 It's adding to the back months and making a better price point for the futures complex. Perfect. And I think I agree with you that regulators were trying to sort of throw the industry a bone and test the waters before they went all in, obviously, on a spot ETF, which I still think personally could be very far down the road. I don't think that's something that we're going to see very soon for those who are optimistic about it. I would love to be proven wrong. It's just sort of how I feel. Speaking of the regulators and the SEC who allowed this product, there's been a lot of talk about what is or isn't a security, which cryptocurrencies people will be allowed to trade, how innovators

Starting point is 00:30:38 will be able to operate in the United States. If the SEC were to take the hardest line position and deem effectively everything not named Bitcoin a security, maybe Ethereum is safe. How would that affect what you're doing at the CME and what you offer? Yeah, I mean, just going back to that spot ETF for a second, I think it will. It's a test of time, right? It will come at some point, hopefully. But there are so many challenges to deal with. You know, we talked about flash crashes on any one exchange.

Starting point is 00:31:15 How would an ETF deal with, you know, a mark to market when in that last minute, when they're assessing their portfolio, the resultant mark to market you know is is several hundred thousand points lower um so it's things like that that i think you know that the the regulator took a very cautious step you know that removing having that futures uh base contract removes that vulnerability to one price or one exchange. CME, as you mentioned, is less likely to outages. We have the circuit breakers. So it's a first step. And I think as

Starting point is 00:31:55 regulation evolves, we will see more innovation in the space. And from CME's perspective, I think we think regulation is a feature, not a bug, you know, but that it's, you know, robust, fair regulation that doesn't stifle innovation, competition or growth. It should be measured. And in our experience, there are a lot of market participants, particularly on the institutional side, that are looking for cryptocurrency exposure, but they want that time tested, regulated financial instruments as their first step to gain exposure. So really, you know, as that regulation clears itself or there's more clarity, I think there's a lot more innovation that will come. Whether that is concentric from futures in terms of innovation in other products, so whether that's more ETFs and funds and structured products, I think that will be really exciting to see. And for us, the involvement of more products, you know, as as when that becomes fair and reasonable for our clients and we can create a robust underlying index.

Starting point is 00:33:16 But really, you know, it it comes down to the regulation. We need to know where to send the paperwork, whether it's a CFTC regulated instrument, we need to know where to send that regulation. So time will tell. It feels like those answers are coming sooner than later at this point. I mean, even Biden is issuing an executive order, presumably next month, to start to straighten out which regulators are going to handle what. But that's got to be like watching the Super Bowl for you guys trying to figure out what's going to happen when you're trying to operate in this environment. I mean, everyone knows that markets hate

Starting point is 00:33:53 uncertainty, sort of the old meme. But I think that people just want clarity, right? I'm assuming institutions just want clarity. Even if it's kind of what they would view as negative, they would probably just like to know what they can do as opposed to be operating completely in the gray. In my opinion, that's probably been a huge barrier to a lot of the money, like you said, that wants to get in being unable to. Right, right. And I think, you know, looking forward into 2022, I think it's one of the key things that remain in focus, right? Regulation. It's what the Fed and what's happening with the inflation and the dollar, government spending, you know, all of those things coming together and shaping institutions' views of how much they invest into crypto into 2022. And I think regulation is certainly a part of that. Being that the CME is so trusted and well-regulated, well-operated, would launching a retail-focused spot exchange

Starting point is 00:34:56 be something that would ever be considered? We talk about these flash classes and all these things that happen on the other exchanges. If it was in the framework of the CME and was offered by you guys, is that something that would be interesting? It's not really something that I would comment on. But CME, as we talked about, has a long history of innovation. We are a futures and options exchange. And so where we can offer products that suit our clients' needs within that framework,

Starting point is 00:35:35 and it's a framework that is tried and tested, right? We have these checks and balances in place. So where we can offer products within those guardrails, within that environment, I think that's definitely our go-to. It makes me think of the movie Dumb and Dumber. So you're saying there's a chance, the one in a million talk. And what's interesting is we talk about it's got to be a very challenging market because there's so many different exchanges. And as you said, there's these arbitrage opportunities and a difference in price across spot all across the world. And that still exists even with futures. Don't we also still also see different futures prices based across different exchanges? right yeah so i mean the the the spot the there there's um kyc and aml frictions in in the spot market and then you have the futures market that again is broken into regulated and and unregulated

Starting point is 00:36:36 and i think you know there is competition um but there is plenty to go around. And I think what's interesting is that the regulated and unregulated futures offerings are very different offerings, but they mean different things to different people, right? So, you know, to BitMEX's credit, for example, they were the first to pioneer the perpetual swap offering. And it was largely done in a way to avoid some of that regulatory scrutiny, to get to market, to allow access to crypto that maybe wasn't on a spot

Starting point is 00:37:14 exchange. Where we're a heavily regulated US-based futures market, there are certain things that we can and cannot do. So fundamentally, our offering is different, but that appeals to a different customer base. And one of the great things that we see are that there are certain businesses, certain crypto nascent firms, hedge funds, that can trade the CME product, they can trade the non-regulated futures,

Starting point is 00:37:42 they can trade spot, and they can take advantage of all the ARB opportunities. And again, that's great for price discovery. It's great for risk transfer. So there's more than enough to go around in this space. The perpetual swap is such an interesting product. And it's obviously sort of native to crypto. But a lot of people sort of see that as the reason that the market still has so much volatility is because obviously if you can get 100x leverage and someone can literally see what the open interest is and whether longs are paying shorts and in what amount, you can very easily long or short squeeze. are products that eventually probably need to either be regulated or that they just need to

Starting point is 00:38:25 become a smaller part of the market for that sort of insane roller coaster to end. Yeah, I think over the past four years or so, you know, we've seen that volatility reducing a little bit. So volatility is still certainly there in the market, but the ability to use futures to manage that risk, you know, the ability to go short, the ability to risk transfer. So I think that volatility, where we were seeing huge swings overnight, it's still there. But I think that volatility has reduced a little. And I think education around volatility and product characteristics between the regulated and unregulated space is, I think, needs to continue. And I think that's what is really important to investors, having those resources to understand market moves and how that affects your portfolio. Moving on, do you guys see DeFi as something interesting to incorporate into your products? Or do you in any way see DeFi products as competition to what you're building?

Starting point is 00:39:38 No, I think it's additive. You know, the entire industry, you know, from a DeFi perspective, we're seeing more of the establishment of more companies that are doing lending, borrowings, the emergence of SEC lending, prime brokerage services. All of that coming out of DeFi, I think is additive. Again, those companies have a need to risk manage. They're using futures in some instances. So I think it's additive where we have to kind of define our role is how we can be a part of that and how we can add solutions. So, you know, again, it's something that we're continuously monitoring and seeing where we

Starting point is 00:40:24 can add value. That makes perfect sense. So after this conversation, how can somebody who wants to trade on the CME gain access? Who do they call? How do they participate in this market? Yeah, so great question. A lot of detail is on our website. So cmegroup.com backslash cryptocurrencies or Bitcoin or Ether. There's

Starting point is 00:40:49 a contact us page there. But the easiest way would be to go to their broker, see if their broker offers Bitcoin futures. You know, the micro, as I mentioned, is a great way to gain access. It's a small size product. It's a 0.1 multiplier. So it's a really small, easy way to get into the futures product. So see if they offer that. And yeah, if you want to get in touch, they can definitely reach out through all of our contact us pages.

Starting point is 00:41:23 And where can our listeners follow you after this? Yeah, I'm on, I'm on Twitter. I'm on Instagram. I'm on all the social medias. So yeah, they can, they can hit me up at pay L S L. Awesome. Well, thank you so much for taking the time. I think you clarified so much, so many questions that people have about how the CME actually works, how futures contracts do even for me. and I've dug pretty deep into it. It gave me quite a bit of insight. So thank you

Starting point is 00:41:51 for that. No, my pleasure. And yeah, really excited to see where this market goes. I think 2020 is going to be, 2022 is going to be great.

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The Wolf Of All Streets - Why Bitcoin & Ethereum Futures Are Becoming So Popular | Payal Shah, CME Group

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