Bitcoin is skyrocketing because 2 of the biggest exchange groups in the world are launching bitcoin futures — here's what that means

CME Group, a leading marketplace for derivatives which handles 3 billion contracts worth about $1 quadrillion annually, is set to roll out bitcoin futures by the fourth quarter.
A bitcoin future will allow investors to bet on the future price of bitcoin without having to actually hold the coin itself.
It could bring more Wall Street firms into bitcoin and other cryptocurrencies.

Just when you thought you finally got your head around bitcoin, along comes a new bitcoin-linked financial product: bitcoin futures.

CME, the Chicago-based exchange giant, said on Tuesday that it would launch a bitcoin futures product before the end of the year. Last year CME launched a bitcoin index CME CF Bitcoin Reference Rate. The bitcoin futures will be based off of this rate.

Cboe has long had a plan for bitcoin futures in the works

Bitcoin popped after the news and has continued to rise since. It's gained more than $300 since Tuesday and is trading near $6,600 per coin.

Since the beginning of the year, the price of bitcoin is up over 500%. That epic rise has gripped the attention of Wall Street and Main Street alike. The development of bitcoin futures is the latest chapter in a broader story about cryptocurrencies gaining traction among traditional players in financial services.

Here's a quick explainer of bitcoin futures and why they could be a big deal for Wall Street and bitcoin.

"People will be able to settle in cash," Deters said. "So you can take a speculative position without touching bitcoin itself, which helps make it more attractive to all sorts of folks."

You can take a speculative position without touching bitcoin itself, which helps make it more attractive to all sorts of folks.

There are a number of reasons why bitcoin futures products would be a big deal for Wall Street and the world of crypto. First, the launch of bitcoin futures by establishment firms is likely to to open the door to wider participation in bitcoin trading by other Wall Street firms.

Business Insider previously reported two high-frequency traders, Virtu Financial and DRW, are looking to provide liquidity in bitcoin futures markets. And other firms are likely to jump on the bandwagon as well. Goldman Sachs, for instance, is thinking about setting up a bitcoin trading operation.

Futures could also help dampen volatility in the underlying bitcoin market, which is known for its wild price swings. Here's Bank of America:

We would not overstate this, as a material reduction in volatility would require there to be a large community of speculators prepared to provide liquidity to the natural owners of the various coins, but given the volatility of the coin markets, maybe there already exists a cadre of participants who would look to short coins on strong days and vice versa, which could overall reduce volatility.