Does Delivery Matter?

There are two competing Bitcoin futures contracts.  CME and CBOE each have them.  Trading has been light, and thin so far.  I looked at the CME webpage today and saw Euro/USD futures had traded 88K already.  Indian Rupee’s had traded 2.5K.  Bitcoin had traded 225.  CBOE’s futures had traded just over 1K.

As I have said before, despite the hype Bitcoin is a small market right now.

One thing the CME and CBOE indexes have in common is they settle in US Dollars.  Some commodities do that.  Eurodollars were the first one to settle in cash back in 1981.  The final trading day in Eurodollars was called, “take a shot day” because you could finish the day with a position and no threat of having to deliver or accept delivery of the instrument.

S&P futures settle in cash.  It’s too complex to deliver.  Treasury futures aren’t settled in cash.  Often times it screws up the last week of trading because there aren’t enough securities out there to deliver.  Many of the old hard commodities deliver in the actual commodity.  Accept delivery on a cattle contract and you get a feedlot receipt.  You better have a big grill because you could have a pretty big barbeque.

Energy market participants desire what they call “wet barrels”.  They want to actually take delivery.  Back in 2009 when the market was in severe contango you could accept delivery for the near term, and sell the long term and make a good profit.  The only problem was where to store it.  Big oil companies had tankers full of oil just floating out on the ocean.

There was an old lumber trader named Stu Gimbel.  He traded pretty big.  On one expiration, he made a mistake and had to take delivery of a lot of lumber.  He was up in the office calling all over the country trying to get rid of it. Just by chance, someone looked out the window and saw a barge full of lumber coming down the Chicago River.  They yelled, “Hey Stu, here comes your fu*()&^%$ lumber now.”  Gallows humor was a staple of the exchanges.

Hogs and lumber both used to deliver, but switched to indexes.  Trading volume increased.  However, there are stalwarts that say it was better when the threat of delivery was in the market.

Aside from the fact it is sort of humorous that the antithesis of fiat currency is settled in fiat currency, does it matter if Bitcoin is deliverable or not? Would it increase the volume, or decrease the volume, or do nothing?