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Hello
It amuses me when a tweet on X swings money, making people bet on crypto. I have been guilty. I recollect routing a big chunk of a month’s savings half a decade ago into Dogecoin because, well, Elon Musk tweeted about it. That was when I didn’t even know what crypto really was.
But there’s a kind of money that doesn’t enter crypto with a tweet, a podcast or a conference keynote. It needs a bit more. Possibly a memo from a federal regulatory body, a risk sign-off, and a trustworthy venue could help.
The latest statement, from the Commodity Futures Trading Commission (CFTC), allowing the trading of spot crypto products on CFTC-registered exchanges does just that.
The nod from the CFTC could encourage the country’s most institutionalised derivatives marketplace, the Chicago Mercantile Exchange (CME), to list cryptocurrencies. If this happens, it will open the floodgates, inviting serious capital from traditional markets into crypto.
In today’s deep dive, I will explain how this move could allow crypto to flow into the same building where the U.S. keeps its most trusted assets and why it matters.
Let’s go to the story,
Prathik
Long before today’s seamless financial markets came into existence, people didn’t want to trade financial products. The problem wasn’t the lack of buyers and sellers; the market had plenty of them. It was the lack of trust, with everyone worrying about “what happens if the other side can’t pay?”
Today, you don’t have to worry about it anymore. That’s because of the underappreciated invention of the modern stock exchange, which builds trust by standardising contracts, mandating disclosures and policing behaviour. These sophisticated markets wrap all of this in ‘clearing’ and ‘margin’ so that settlement risk doesn’t discourage traders every day.
For all the talk about “trustless” systems, trust doesn’t come easy in crypto markets. The CFTC’s latest release could fill that gap.
CFTC Acting Chairman Caroline Pham said, “...listed spot cryptocurrency products will begin trading for the first time in U.S. federally regulated markets on CFTC-registered futures exchanges.” Pham expects the move will give Americans “more choice and access to safe, regulated U.S. markets.”
The update redraws the lines for where crypto’s centre of gravity could move, as the regulator pushes to weave digital assets into the mainstream markets of the world’s largest economy.
One look at CME’s data will help you understand how big a venue it could be for crypto spot markets.
On November 21, CME’s crypto futures and options hit an all-time daily volume record of 794,903 contracts in a single session, surpassing its previous record of 728,475 contracts on August 22 this year.
The marketplace also puts numbers on how much activity has already migrated into its regulated wrapper across the year. Its year-to-date (YTD) average daily volume of 270,900 contracts, with a notional value of about $12 billion, rose 132% year-on-year (YoY). Meanwhile, the average open interest YTD stood at 299,700 contracts, with a notional volume of $26.6 billion, up 82% YoY.
Even in a hypothetical scenario, if CME captured just 5% of that notional turnover as spot activity, we would be talking about $600 million per day. At 15%, the figure could approach $2 billion/day.
But what advantage does CME offer by bringing spot crypto and derivatives under the same roof?
First, it shortens the distance between a trader’s position and a hedge. Right now, many traders hold their crypto exposure in one place and their hedges somewhere else. They may be trading crypto futures on CME because it is regulated and cleared, but source their spot exposure from ETFs, prime brokers, or crypto exchanges. Each hop between venues may not necessarily increase monetary costs, but it comes with non-monetary friction. Think of dealing with more counterparties, incurring more operational overhead, and being exposed to more points of failure.
If a regulated marketplace hosts both spot and derivatives markets, hedging becomes cleaner, and rolling positions becomes more efficient. Both parts of the trader’s bet can now reside in the same compliance universe, where margin, reporting and surveillance are already embedded.
Crypto-native venues that run both spot and derivatives — Coinbase (with Deribit), Kraken, and Robinhood — have benefited by offering everything in one place for their users.
The second advantage is that it changes what “spot” even means for big-ticket traders.
As a retail trader, when you buy spot on a crypto exchange, you are thinking about the price of the asset. When a fund buys spot, it considers custody, settlement, reporting, and the stability of the marketplace when markets are stressed.
A derivatives exchange like CME already has a system in place that instils confidence. The clearing house, the margin system, and the surveillance that CME offers can provide a regulated safehouse for large fund houses to bring their capital while navigating a relatively more volatile crypto market during periods of uncertainty.
Tens of billions of dollars could flow in from major fund houses. US spot Bitcoin ETF issuers alone hold over $112 billion in assets. Since their inception in January 2024, the issuers have received cumulative inflows of over $57 billion.
A combined ecosystem of spot and derivatives could shift some participation from “own it through a fund” to a “trade it on a market” approach. For fund houses, it offers cost benefits and better control.
ETFs charge fees and are designed to hold the asset. Although they trade like stocks, they still run on equity-market infrastructure during the trading window. For fund houses that need to manage risk and exploit inefficiencies, they will prefer a venue that allows them to do round-the-clock hedging, tight basis execution, frequent rebalancing, or market-making.
The third advantage is operational.
The CFTC framed its move as a response to “recent events on offshore exchanges” and argued Americans deserve access to markets with customer protections and market integrity. The detail buried in that is leverage. Pham explicitly pointed back to post-financial-crisis reforms and said Congress intended leveraged retail commodity trading to occur on futures exchanges, but had not provided clarity for years.
Leverage is where crypto’s worst stories unfold. You don’t need to look far back; we saw $19 billion wiped out in crypto’s worst liquidation event on October 10. If leverage migrates into platforms built around surveillance, margin discipline, and clearing, you at least get more transparency. Instead of a black-box offshore liquidation cascade, you get visible margining, known counterparties, and rulebooks that don’t change randomly.
The update has even prompted crypto platforms to pledge fair treatment for retail and major traders.
Right after the CFTC released its statement, US-regulated derivatives exchange Bitnomial claimed to offer “equal and fair treatment” to retail and institutional orders without preferential routing.
When I put all this together, the CFTC move seems promising because it could make spot crypto trading easy and trustworthy, something only machinery moving serious capital has offered all this time.
The CFTC’s statement won’t automatically turn CME into a full-blown spot crypto exchange tomorrow. Even if the marketplace moves in that direction, the first version will likely be conservative by design, with fewer assets, tightly defined leverage terms, and access routed through intermediaries already in the CME ecosystem.
That’s because trust has always been slow and gradual. Even historically, it came by adding guardrails first, and not from a random tweet on X.
That’s it for this week’s deep dive. I will see you with the next one.
Until then, stay sharp,
Prathik
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Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.
Great piece on the trust infrastructure angle. The distance-to-hedge argument is underrated—most institutional desks I know run split books between spot exposure via ETFs and CME futures for hedging, which means reconciling positions across legal entities and dealing with overnight basis risk. Collapsing that into one venue doesn't just save on ops cost; it also makes the margining math way simpler when volatiltiy spikes and you need to prove liquidity fast.