CFTC Introduces Guidelines for Issuing Cryptocurrency Derivatives

It was only a matter of time until regulators introduced new guidance for cryptocurrency derivatives and associated products. Considering that these investment vehicles are of great interest to consumers and institutional investors alike, it only makes sense that the CFTC would take a special interest in such products.

The CFTC’s new Guidelines are in Place

Bringing more legitimacy to the cryptocurrency industry can be done in many ways. Regulation will play an integral role in this process, even though not everyone is a big fan of governments meddling with decentralized cryptocurrencies or its underlying technology. For the CFTC, issuing new guidelines on cryptocurrency derivatives is of great importance at this point in time.

The new guidelines will help exchanges and clearinghouses list cryptocurrency-related products. Considering that Bitcoin futures exist already, some people may wonder why this decision is only being made now. Even so, the regulator acknowledges that overall interest in Bitcoin derivatives is growing rapidly, and helping companies adhere to specific rules will make these products even more appealing.

Both Cboe and CME began issuing Bitcoin futures in late 2017. At the time, there was some confusion as to how that would be done without any official regulation, guidelines, or vetting process. It has been an interesting ride for the cryptocurrency industry, even though overall interest in Bitcoin and derivatives still remains rather low. With new guidelines in place, more competition will come to market, which will likely result in more interest.

With the new rules, the CFTC has introduced a few best practices for launching future cryptocurrency derivatives. Exchanges will need to be able to monitor the underlying spot markets. Additionally, they will need to actively coordinate their product launches with federal regulators. Consensus among market participants will also need to be achieved prior to launching any new products, which is a rather interesting guideline.

Although these guidelines are official as of right now, they are not mandatory by any means. The CFTC is mainly interested in providing assistance rather than actively regulating the cryptocurrency derivatives industry as a whole. It is important that companies comply with existing regulations, though these new best practices are mainly advice.

It will be interesting to see how all this affects the future of Bitcoin derivatives. It seems to be only a matter of time until interest in such products rises, as both Cboe and CME have seen increases in overall volume. With new guidelines in place to further legitimize this business model, interesting things are bound to happen. Taking cryptocurrency mainstream will not be easy, but things are slowly heading in the right direction.