Bitcoin futures starts trading in US, ‘opening up market’

This article is more than 12 months old

NEW YORK The newest way to bet on bitcoin, the cyptocurrency that has taken Wall Street by storm with its stratospheric price rise and wild daily gyrations, arrived early this morning (6am Singapore time) when bitcoin futures start trading.

The first bitcoin future trades are set to kick off on Cboe Global Markets Inc's Cboe Futures Exchange, and the launch has given an extra kick to the cyptocurrency's scorching run this year.

It has nearly doubled in price since the start of this month, but recent days saw sharp moves in both directions, with bitcoin losing almost a fifth of its value last Friday after surging more than 40 per cent in the previous 48 hours.

But while some market participants are excited about a regulated way to bet on or hedge against moves in bitcoin, others caution that risks remain for investors and possibly even the clearing organisations underpinning the trades.

The futures are cash-settled contracts based on the auction price of bitcoin in US dollars on the Gemini Exchange, owned and operated by virtual currency entrepreneurs Cameron and Tyler Winklevoss.

"The pretty sharp rise we have seen in bitcoin in just the last couple of weeks has probably been driven by optimism ahead of the futures launch," said Mr Randy Frederick, vice-president of trading and derivatives for Charles Schwab in Austin.

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.

The futures are an alternative to a largely unregulated spot market underpinned by cryptocurrency exchanges that have been plagued by cyber security and fraud issues. The futures launch has so far received a mixed reception from big US banks and brokerages.

Interactive Brokers plans to offer its customers access to the first bitcoin futures when trading goes live, but bars clients from assuming short positions and has margin requirements of at least 50 per cent.

Several online brokerages including Charles Schwab and TD Ameritrade will not allow the trading of the newly launched futures from day one.

Some of the big US banks, including JPMorgan Chase and Citigroup, will not immediately clear bitcoin trades for clients, the Financial Times reported last Friday. Goldman Sachs said last Thursday it is planning to clear bitcoin futures for certain clients.

Bitcoin's manic run-up this year has boosted volatility far in excess of other asset classes.

The launch of futures may help dampen some of the sharp moves, analysts said. But they warn that much of how the futures market will react is a mystery, given that bitcoin is unlike any other asset.

"This is completely unknown territory," said Mr Frederick.

Fears of inaccurate pricing and systemic risk to clearing houses should prices move sharply and clients fail to meet margin calls remain.

Brokers have said that more safeguards are needed to protect against bitcoin's high volatility. - REUTERS