[vasilipupkin]

I disagree completely. Cash settled futures let people bet on bitcoin without ever touching bitcoin itself. For example, suppose I am a huge bitcoin hater and want to bet that bitcoin will go down 100% in the next 3 months. Why force me to worry about wallets, etc.? I just want to have a way to express my conviction without messing with all that stuff.

[turkeytotal]

On principle I agree, however Bitcoin poses additional complexities that other commodities do not, specifically in regards to contentious netsplits that result in irreconcilable forks (which may or may not be fighting for the name Bitcoin). In the event of a netsplit, barring physical delivery of actual outputs (private keys, not a settlement transaction), CME has the power to dictate which is settled and even which fork gets the BTC ticker for in-flight contracts. This gives CME quite a bit of influence in the outcome of a fork; for example, what would CME have called Bitcoin if their futures were live during the 2x hard fork? If they were swayed by some of the larger players in the space, this could cause serious consequences for the wider network (confusion, loss of funds and other moral hazards).

This is one of the complexities of the ETF filings, where the filers stated their intention to determine which fork the ETF represented by things like hashpower, market cap or other temporal data points. This is dangerous for many reasons, thus it is best for the contracts to represent all possible future forks and not make a decision on them, allow the private keys to be delivered and allow the party who the coins are delivered to take split as they see fit. While this condition could be represented in a cash settled contract, there are infinite possible forks and CME could not possibly keep up with them all, thus the only practical way to solve the problem is physical delivery of private keys.

[minimax]

Lots of people trade physically settled commodities futures contracts without handling the underlying products. You just have to make sure you close or roll your position before it settles.

[vasilipupkin]

Of course, but you could get stuck in a position. What's the point when cash settling accomplishes the same thing ?

[jnordwick]

Physically settled allows the future to better match the price of the underlying since you can take or give delivery in it.

[vasilipupkin]

That's not correct. They still have to pick a settlement price. Physically settled futures makes sense when customers are interested in the commodity itself and cash settled makes more sense for pure speculation.

[jnordwick]

There are many products that are settled both ways, and some financial futures that are physically settled.

[vasilipupkin]

Sure. But physically settled funancial futures such as bond futures are physical because customers actually want to get delivery of the underlying bonds. In the case of bitcoin futures, most likely they don't. Physically settled futures cost the exchange more in terms of additional expenses / infrastructure. So the exchange will go with physical only when there is a clear customer demand for that.