If I sell futures contracts against 10 BTC, and I have 10 BTC in my Bitcoin wallet, I’m fully hedged, and I take no risks (provided the wallet in question is sufficiently secure).
If CME requires USD as collateral, how would I hedge my position? If the BTCUSD price rises 10%, I can’t sell my BTC for USD (to use as collateral) because then I’d expose myself to further price increases before expiration.
Unless I’m missing something, this will become an inefficient market, bottlenecked by the ability of contract sellers to come up with USD collateral.
A solution could be to collect a Bitcoin public key for contract buyers, and require sellers to send the BTC amount covered by the sold contracts to a "collateral BTC address" which can be redeemed in two of the following ways a) by the contract seller, e.g., 7 days after expiration of the contract b) by the contract buyer+CME (2-of-2 multi-signature) after expiration of the contract. CME would keep the USD proceeds, from selling the contract, in the seller's account at the CME. If the Bitcoin USD settlement price doesn't rise to more than the contract selling price, CME would simply transfer the settlement price USD amount from the contract seller's to the buyer's account. If the price rises a lot, the buyer of the contract would be able to (by CME providing a signature as well) redeem the bitcoins sitting at the "collateral BTC address", and sell the bitcoins at the current market price (which the contract buyer would have 7 days to do before the contract seller can redeem the bitcoins himself).
This way, CME doesn't store any bitcoins themselves, and contract buyers are responsible for keeping their own private keys safe (optimally, private keys should be generated on an offline device, and the public key safely transferred to an online computer). In order to steal BTC collateral, an attacker would have to steal both the contract buyer's and CME's private key.