Bitcoin futures eased back from
an initial surge of almost 22 percent to trade up 13 percent on Monday, in an
eagerly awaited U.S. market debut that backers hope will confer greater
legitimacy on the volatile cryptocurrency and lead to its wider use.
Although bitcoin futures were
already offered on some unregulated cryptocurrency exchanges outside the United
States, the Chicago-based Cboe Global Markets’ launch marked the first-time
investors could get exposure to the market via a mainstream regulated exchange.
The debut on Sunday night may
have caused an early outage of the Cboe website. The exchange said that due to
heavy traffic, the site “may be temporarily unavailable”.
The one-month bitcoin contract opened
trade at 6 pm local time (2300 GMT) at $15,460, dipped briefly before rising to
a high of $18,700 and then slipping again.
As of 1112 GMT the one-month
future was up 13 percent from the open at $17,450, around $1,000 higher than
the “spot” bitcoin price - the price at which bitcoin is currently being bought
and sold.
The two-month contract was
trading at $18,880, while the three-month contract was changing hands at
$19,040.
“The premiums have so far been
very high, demonstrating that few want to take the short side of the trade,”
said Altana Digital Currency Fund manager Alistair Milne, whose fund has $35
million in assets under management.
In just over 12 hours after the
launch, 2,780 contracts had been traded, meaning around $48.5 million had been
notionally invested. That compares with daily trading volumes of more than $20
billion across all cryptocurrencies, according to trade website Coinmarketcap.
Just 13 trades of the two-month
contracts had been traded.
“It will take time for derivative
volumes to build up, but eventually if they prove to be a significant percentage
of the global trade, they should in theory help stabilize things,” said Milne.
Most fund managers at mainstream
asset management firms and other institutional investors say they will not be
lured into the market by the launch of the futures.
“There’s no place for bitcoin in
a multi-asset portfolio given the very high volatility,” said Robeco Chief
Investment Officer Lukas Daalder.
“We’ve looked at it in the past
but if you look at the number of times that you need to trade to keep your
exposure at the same level, after one week you need to rebalance the portfolio
already,” he added.
On the Luxembourg-based
Bitstamp exchange, bitcoin prices surged 12.5 percent on the day to
$16,570, close to an all-time high of $16,666.66 hit on Friday.
Bitcoin is up more than 1,500
percent so far in 2017, having started the year at less than $1,000, and its
gains in the past month have been rapid.
CASH-SETTLED
Experts had worried that the
risks associated with the currency’s Wild West-like nature could overshadow the
futures debut. Bitcoin tumbled 20 percent in 10 hours on Friday.
“Even if there is an institution
or institutional-sized trader out there, they are going to want to make sure
that the mechanics work first, just for the futures,” said Ophir Gottlieb,
chief executive officer of Los Angeles-based Capital Market Laboratories.
“I think the excitement will come
when the futures market is established. That can take a few days,” Gottlieb
added.
The futures are cash-settled
contracts based on the auction price of bitcoin in U.S. dollars on the Gemini
Exchange, which is owned and operated by virtual currency entrepreneurs and
brothers Cameron and Tyler Winklevoss. Bitcoin was quoted at $16,674 on the
Gemini exchange.
While bitcoin’s price rise
mystifies many, its origins have been the subject of much speculation.
It was set up in 2008 by someone
or some group calling themselves Satoshi Nakamoto, and was the first digital
currency to successfully use cryptography to keep transactions secure and
hidden, making traditional financial regulation difficult if not impossible.
Central bankers and critics of
the cryptocurrency have been ringing the alarm bells over the surge in the
price and other risks such as whether the opaque market can be used for money
laundering.
“It looks remarkably like a
bubble forming to me,” the Reserve Bank of New Zealand’s Acting Governor Grant
Spencer said on television on Sunday.
“We’ve seen them in the past.
Over the centuries we’ve seen bubbles and this appears to be a bit of a classic
case.”
Many investors have stood on the
sidelines watching its price rocket. However, it is possible to buy bitcoin
without having to spend the full price of one coin. Bitcoin’s smallest unit is
a Satoshi, named after the elusive creator of the cryptocurrency.
Somebody who invested $1,000 in
bitcoin at the start of 2013 and had never sold any of it would now be sitting
on around $1.2 million.
Heightened excitement ahead of
the launch of the futures has given an extra kick to the cryptocurrency’s
scorching run this year.
The CME Group is expected to
launch its futures contract on Dec. 17.
CONTROVERSIAL MOVE
Bitcoin fans appear excited about
the prospect of an exchange-listed and regulated product and the ability to bet
on its price swings without having to sign up for a digital wallet.
Others, however, caution that
risks remain for investors and possibly even the clearing organizations
underpinning the trades.
“You are going to open up the
market to a whole lot of people who aren’t currently in bitcoin,” said Randy
Frederick, vice president of trading and derivatives for Charles Schwab in
Austin, Texas.
The launch has so far received a
mixed reception from big U.S. banks and brokerages, though.
Several online brokerages,
including Charles Schwab Corp and TD Ameritrade Holding Corp did not allow
trading of the new futures immediately.
The Financial Times reported on
Friday that JPMorgan Chase & Co, Citigroup Inc would not immediately clear
bitcoin trades for clients.
Goldman Sachs Group Inc said on
Thursday it was planning to clear such trades for certain clients.
Bitcoin’s manic run-up this year
has boosted volatility far in excess of other asset classes. The futures
trading may help dampen some of the sharp moves, analysts said.
“Hypothetically, volatility over
the long run should drop after institutions get involved,” Gottlieb said. “But
there may not be an immediate impact, say in the first month.”