Bitcoin Futures at Bank of America Could Lead to Buying and Selling of Bitcoin: What You Need to Know

Last Updated on July 18, 2021

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The Bank of America is now assisting some clients in trading Bitcoin futures, according to reporting by Will Canny and Tanzeel Akhtar of Coindesk.

Canny and Akhtar attribute the information to “two people with knowledge of the matter who spoke on condition of anonymity.”   

Various news organizations that have picked up the story, such as Fortune, are reporting that they have sought responsive comment from Bank of America, but received none.

If the story is accurate, the move is symptomatic of a gradual acceptance of Bitcoin as an appropriate asset class, if not as a medium of exchange, by many large financial institutions. Bank of America, based in Charlotte, North Carolina, is the nation’s second largest bank. It also has a reputation for a conservative approach to innovations in the markets. (Customers there, for example, have only one savings account option.)     

Clearing services for Bitcoin futures may be a toe dip in the waters that will lead in time to the buying and selling, through Bank of America, of the Bitcoins themselves, the matriarch of cryptos yet still a controversial asset class.  

Bank of America Did Its Research

Yet the report does not come as a great surprise. Roughly a week ago, Bloomberg was reporting that Bank of America had just created a “crypto research team”“ Candace Browning, Bank of America head of global research, said at the time: “Cryptocurrencies and digital assets constitute one of the fastest growing emerging technology ecosystems.”

BoA is, Browning added,  “uniquely positioned to provide thought leadership due to our strong industry research analysis, market-leading global payments platform and our blockchain expertise.” 

Bank of America’s blockchain expertise is real, as reflected in its blockchain patent portfolio –it holds more than 60. 

Bank of America Has Expertise in Crypto
Bank of America’s blockchain expertise is real, as reflected in its blockchain patent portfolio –it holds more than 60. Photo credit:

In recent days, for example, Bank of America has applied for a patent for a new authentication system for blockchain users.

Nonetheless, it has been cautious in their use. Its CEO, Brian Moynihan, testified before Congress recently that it “has not found a use case at scale.” As Browning’s comments and the news both show, Bank of America seems prepared to put that expertise to use as the provider of Bitcoin trading services.  

What is the appeal of Bitcoin futures, in particular? One cogent fact may be that Bitcoin futures already have the ultimate derivatives-trading stamp of mainstream acceptance: they are a major product of the Chicago Mercantile Exchange Group. Indeed, one of the two source of the Canny/Akhtar story was specific that the BoA will be using the CME futures on behalf of the clients involved.

Bitcoin Has Shifted

CME bitcoin futures were launched four years ago. This May, the CME created a new product, Micro Bitcoin futures, in which a contract is sized at one tenth of one Bitcoin, as a way of facilitating hedges, since the price of a single Bitcoin has become unwieldy. Recent price moves illustrate both the excitement and the risk associated with this asset class. 

From early August to late October of last year, Bitcoin was flat, selling for roughly $11.8 thousand. Beginning it late October the price rose steadily, and it passed $21K in December. With some small zags early this year, the zigs were very strongly upward, and Bitcoin’s price briefly passed $62K in mid-April.

Since then the movement has been the other way. But Bitcoin is still about $30K. And the news about Bank of America should help keep it from falling through that new floor. 

In May, Goldman Sachs, too, started buying and selling Bitcoin futures in block trades from the CME. Goldman Sachs is using Cumberland DRW as a trading partner. Goldman Sachs’ hedging methods involve non-deliverable forwards (NDFs), in which the counterparties settle the difference between the NDF price and the spot price on a notional agreed-upon sum of the underlying.